How the cost of ERP is formed and what you need to know when choosing a system
A resource planning (ERP) system is an important business automation tool that helps streamline business functions and make them more transparent and controllable. In a dynamic marketplace, ERP helps companies quickly respond to changes and make strategic decisions based on accurate analytical data.
After recognizing the need for ERP, the next logical question is its cost. Buying a system that will store the most important component of your business – that is information – is a serious step that requires a detailed and thorough analysis. And the cost of such a system is closely related to its value to specifically your business. So the question “How much does an ERP cost?” involves many aspects and requires a deeper analysis. This is somewhat like buying a new house, the price of which depends on the number of rooms, its reliability, renovation, current infrastructure and prospects for its development.
This article provides a detailed overview of what the cost of ERP consists of and how to invest in the acquisition of a resource planning system as efficiently as possible.
ERP system pricing models
The choice of a pricing model is fundamental to the issue of ERP cost. There are two main ones: perpetual model and subscription model. Let’s take a closer look at each one:
Perpetual (or on-premises):
In case of choosing the on-premises version, you purchase a perpetual license to use ERP. Data is stored on rented servers (for example, Azure clouds, Amazon Web Services, Google Cloud Platform, Oracle Cloud) or on your own ones. In the latter case, your specialists support operation of the servers, deal with security issues and information backup. This model also involves annual support, upgrade, and bug fix costs. An on-premises approach requires significant upfront costs and ongoing investment as the business scales.
Subscription (or cloud/SaaS):
This method involves renting data space on your ERP provider’s cloud server. Subscription plans are offered based on a SaaS (Software-as-a-Service) model, where a company pays a monthly or annual fee for the required software solution. This model is quite flexible and convenient, as it allows you to subscribe depending on the number of users and requires less maintenance costs than the on-premises version.
According to a 2021 study by Panorama Consulting Group, 77% of companies prefer a cloud solution, 23% prefer an on-premises one. Some companies are even announcing a total transition to the cloud. For example, FedEx has announced closure of all data centers and a full transition to the cloud within 2 years.
In general, the choice between these models depends on the following key factors:
- Your business’ need for specific resource planning solutions.
- The level of confidentiality of your data and the need for their full control.
- The volume of operations and the capacity required to process them.
To answer these questions, it is recommended to audit the existing infrastructure, forecast the growth rate of potential users, and take into account other costs of implementing the system. We will talk about them further on.
When evaluating the costs of implementing ERP, one should understand the scale of this process. If we are talking about smart integration of the system into a business and minimizing project risks, a proven ERP implementation methodology, such as Sure Step from Microsoft, should be used. In a simplified form, it looks as follows:
A well-thought-out methodology involves a qualitative assessment of the scope of work and its cost, respectively. However, the methodology gives good results only in case of an experienced integrator.
Sure, you may need to extend the basic functionality. And this, of course, entails extra costs. But an experienced contractor is interested in “selling” experience and best practices and will not redesign the system from scratch to fit your business processes. An ERP system integrator will suggest how to reduce the number of additional developments by using the basic functionality wisely and building processes in accordance with international standards.
If the basic functionality of the system is not enough, you can always find the necessary add-on in the extension catalog (for example, AppSource for Microsoft solutions).
Today, not every vendor can boast a catalog with thousands of extensions for the system, so be prepared that the following additional steps may be required:
1. Additional modules
Usually, the basic package of ERP system modules covers the main business tasks of the company: accounting, sales, item and warehouse management, etc. But sometimes the specifics of an individual business require additional solutions, such as electronic document management or integration with an OCR system that is able to recognize incoming invoices and automatically generate documents. Such add-ons incur additional costs.
Companies sometimes need a unique system configuration to suit their processes. This requires a more detailed analysis of processes and increases the complexity of implementation. In this scenario, more resources are required from the contractor, so the cost of implementation increases accordingly.
Most ERP vendors offer basic training when a system is purchased. If we are talking about a more advanced level, this implies additional costs. Business owners are sometimes skeptical about such expenses, but experience shows that additional training greatly simplifies the process of using the system in the future.
Another common practice is in-depth training for a full-time business analyst. Having a specialist on your team who can close most of the tasks and take part in the system configuration processes, you will save a lot of money on attracting IT specialists in the future.
4. System localization
There is also a need to adapt the system to the requirements of local legislation. This additional configuration ensures that business activities are carried out in accordance with the requirements of local legislation and take into account the peculiarities and changes in the legal framework.
An example of such a solution in a local market is SMART Localization from SMART business.
IMPORTANT: During martial law, localization of Business Central from SMART business is provided free of charge. Microsoft, for its part, provides an 80% discount on licenses for new users for 2 years. So you can use one of the best ERPs in the world for only $14.
How to make your investment in ERP as beneficial as possible?
Let’s go back to our analogy of buying an ERP with buying a house. You’ll agree that the infrastructure around the house and the prospects for its development are extremely important when choosing.
When buying a resource planning system, we recommend following the same principle. When choosing an ERP, think about the overall ecosystem and the ability to integrate other solutions within it. Is a specific solution provided with current updates? And will this system stay relevant in 5 years’ time?
If you need an ERP today, in the near future you may need a CRM, a certain AI application, or something else. As an example, Microsoft Dynamics 365 Business Central ERP is one of the 72 solutions in the Microsoft business solutions’ ecosystem. By integrating these kinds of solutions, not only do you close the current tasks, but you also create the basis for efficient and clear scaling.
Another key factor when buying ERP is finding a reliable implementation partner. The specifics of a resource planning system is that each case has its own implementation features. So, the more integration experience for various industries, businesses and markets a contractor has, the higher the chances for successful implementation in your business are. It is important that the implementation partner understands the specifics and features of your processes and can not only ensure successful system integration, but also find ways to further optimize it.
Every business is different. And, as you could understand, integration of ERP and the cost of such a system depend on many factors, issues and specifics of an individual enterprise. Sometimes finding a good solution for ERP implementation at a reasonable price is quite difficult.
However, it happens that a good solution finds you on its own. So, if you need advice on an ERP solution for your company, the SMART business team will be happy to help you. Contact us to request a consultation: email@example.com