How to Estimate the Cost of ERP Ownership

Cost of ERP

Are you considering implementing a new ERP system but confused as to where to start when estimating the cost? 

According to a 2022 Software Path report, the average budget for an ERP project is $9,000 per user. However, there is no one-size-fits-all ERP solution, and costs can vary wildly depending on the size and complexity of your organization. In order to develop an accurate budget, you’ll want to consider the specific requirements for your business. 

In this article, we will highlight important considerations to help you weigh the costs of a potential ERP implementation.

Elements of an ERP project budget 

There are calculable one-time and recurring expenses associated with purchasing, deploying, and supporting an ERP system. While not all of these components will apply to every project, these are the most tangible costs that should be considered. Hidden and unexpected costs will be touched on in a later section. Here are some of the key elements in planning the cost of an ERP project: 

  • Software license 
  • Number of users 
  • Features and modules 
  • Customization 
  • App integrations 
  • Data migration 
  • Training 
  • Testing 
  • Upgrades 
  • Maintenance and support 

Select the pricing model that best suits your company 

When comparing top ERP systems, there are two common pricing models available which have their own pros and cons. Each impacts your budget in a different way, so it’s important to understand the major differences between the two as well as your projected growth rate and future needs. 

Perpetual licensing model 

This traditional model is available for on-premise ERP (think Sage 100) and allows businesses to host the software on their own servers. Because of the upfront fee and permanent license, this option may offer lower total cost of ownership for businesses that have the existing infrastructure to support it. However, it can be expensive for those who don’t have the necessary hardware or IT staff in place and can be prohibitive as businesses grow and need to expand their infrastructure. 

Subscription licensing model 

This model, also known as SaaS (software as a service), is available for cloud-based ERP (NetSuite, Sage Intacct) and is increasingly popular for businesses focused on growth. Subscription pricing varies based on number of users, transaction volume, and length of agreement, so this model offers the greatest flexibility and scalability. Despite the potential for lower upfront costs due to lack of need for hardware or in-house maintenance, ongoing subscription costs can increase over time after completion of the agreement term.

Determine which features and modules you need 

A major threat to selecting the right ERP is the potential to be oversold. It can be tempting to opt for the solution with the most bells and whistles, but you may end up paying for features that you will never use. On the other hand, you may go live with a new system only to discover that it doesn’t meet your exact needs and requires further customization or add-ons to fulfill your specific requirements. In order to calculate an accurate budget, choose only the features you need and are realistically planning for. 

There may be features that you don’t need today but will need in the near future. For instance, you might not require multi-entity, multi-currency, or multilingual capabilities, but if you are expecting to expand into new markets, this is something to take into account. 

Many top ERP systems offer modules with specialized tools. Some are included and some incur additional fees on top of the core product licensing fee. Here are a few examples: 

  • Customer Relationship Management (CRM) 
  • Warehouse Management System (WMS) 
  • Human Resource Management System (HRMS) 
  • Financial Planning and Budgeting 
  • Payroll 
  • Ecommerce 
  • Project Management

Calculate your ERP implementation costs 

The cost of implementation will vary depending on all of the elements touched on earlier. Organizations with large IT staffs and dedicated resources may opt to undergo an implementation on their own in order to save money that would otherwise be spent on software consultants. The risk is underestimating the complexity of the project. ERP implementations are famous for going over budget for this exact reason. For example, despite meticulous planning, you may find that the software is not fully compatible with your current processes which means either the software will need to be customized or your business will need to employ process optimization. This stall in the changeover will require additional time and resources while inhibiting your productivity until the project is complete. 

Because of the large number of factors involved, it is advised to work with a solution provider that can negotiate with vendors on your behalf to secure the best deal and make sure you don’t purchase more than you need. A partner can also guide you through the process of gathering your business requirements, selecting software solutions, choosing deployment options, migrating data, training users, and selecting support plans. 

Oasis Solutions has decades of experience assisting organizations like yours get the most out of their software investment. Contact us today to explore your options.

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