When researching any business purchase, price is an important factor. But some investments are difficult to quantify with an exact dollar amount. More importantly, in the business world, cost is not directly related to value. Think of some high-priced executive salaries or inflated costs of luxury cars. Are they worth it? Maybe, maybe not.
When you prepare to make the case for an ERP implementation project, you have to have some idea of the cost. Or, at least an understanding of what all is involved in the endeavor that has a price tag. As business needs become more complex, ERP software is advancing to meet the demand for more customizable features and broader integrations. Current ERP trends demonstrate a shift towards greater cloud adoption and intelligent systems that streamline and automate processes.
Acumatica curated current ERP trends and, according to one Gartner report, 65% of CIOs predict that artificial intelligence (AI) will be integrated into ERP systems by the end of 2022. This will impact the cost but ultimately save time.
To execute a successful ERP implementation, companies must have a clear vision of new system requirements to create alignment throughout the organization. Choosing the right vendor and assigning an internal implementation team increases the likelihood of project success. We wrote previously about Why ERP Implementations Fail and several points touched on insufficient resource allocation.
While it isn’t entirely possible to tell you exactly what your ERP project will cost until we understand all of the requirements to meet your needs, the timeline, the complexity and the customization needed, we can share what we know.
Ballpark costs of an ERP implementation
According to a 2022 ERP Report by software researcher Software Path, the average ERP implementation for a small to mid-sized business is about $9,000 per user. Several factors influence the entire experience from beginning to end. Some are dispensable, and others are essential. Like, how many users will you have and how much do you need to upgrade your existing infrastructure.
Bottom line: it all depends on what you as a buyer, need for an ERP to integrate smoothly with your business and operational processes. According to our experience, industry averages suggest adding 25% when developing a budget. Remember that software is just a portion of this. There will be payroll costs, hardware, network infrastructure upgrades and other equipment investments. Change management leadership is critical, as is ongoing support and maintenance.
Nuts and bolts (and cloud) costs to consider for your ERP budget
Many fixed and variable factors affect the cost of an implementation. What are the components that you’ll require? Most ERP systems include applications for:
- Human Resources
- Customer Relationship Management (CRM)
- Business Intelligence (BI)
- Supply Chain Management (SCM)
- Inventory Management
- Accounting/Financial Management
While some of these may not apply to all implementations, they should be considered and explored through your ERP selection and directly affect cost. Regardless of the functions, your ERP system will execute, there are generally items to consider in your budget.
Here are some of the key components in planning the cost of an ERP system:
- Software licensing fees
- Additional servers and network hardware
- Data conversion and transfer to new ERP
- Customization, if necessary
- Vendor/consultancy support post-implementation
Generally speaking, most systems and implementations will include these tangible items. Of course, making room in the budget for unforeseen issues and contingency planning is just plain smart.
According to ERP Focus, “There are two readily accepted pricing models for ERP purchase, each with their own set of pros and cons. There are also hybrid options which borrow parts from each model, but in order to grasp what will work best for your organization, you need to understand the main differences between these two.”
When thinking about budgeting, two primary ways to organize and own your ERP system are perpetual licensing or SaaS.
The perpetual licensing model (aka on-premise systems)
For larger businesses with the hardware and team infrastructure, hosting the software on in-house servers has several advantages:
- Well-defined cost of ownership
- Allows permanent use of license without ongoing subscription costs
- May offer lower total cost of ownership (TCO) for larger businesses over time
Small businesses might find this more costly and challenging as the upfront costs for adequate hardware can be expensive. However, once that infrastructure investment is made or for those with it in place, perpetual licensing can be a cost-saver.
The SaaS subscription model (aka cloud-based systems)
The SaaS model is increasingly popular with smaller businesses with their eyes on growth and flexibility. Given that this model incorporates cloud-based hosting, a small business need not invest in a hefty infrastructure overhaul or large upfront license fee. Of course, it is not the best fit for every business, so here is a quick snapshot of SaaS pros and cons:
- Subscription pricing can be based on user numbers or transaction volumes to give greater flexibility and scalability
- Lower upfront costs due to lack of necessity for on-premise hardware extension
- Lower initial outlay for license
- Ongoing subscription costs could outweigh the costs of a perpetual license for larger businesses that could have utilized existing infrastructure on-premise
- Sudden spikes in demand can increase costs under any on-demand license agreement, making cost management more complex over time
To take the first step in figuring out what your options are, schedule an appointment today. We can help review your existing infrastructure, look at your user and transaction growth rate and discuss other ERP implementation costs.
Crestwood Associates is more than ERP. We bring current technologies – such as modern ERP systems like Acumatica and Microsoft Dynamics, along with cloud and business services – all while doing the right thing by our clients. Living by this motto helps us to lead the way to change the widespread failure of ERP implementations over the past 25 years.
With modern methodology, over 20 years of experience and expertise and a team of certified business consultants, we see this as a chance to pave the way toward a 100% client success rate. How? Crestwood is committed to being beholden to our clients, not software vendors and, in a larger sense, we want the people who work with us to enjoy technology and enable them to enhance their own lives.
Ready to start planning? Request a consultation today!