How much does an ERP system actually cost?
Enterprise Resource Planning (ERP) systems are significant investments that can maximise your Return on Investment (ROI). Investing in an ERP system is not a decision that should be taken lightly, as the implementation comes with a high initial cost. But this has a long-term benefit of streamlining business processes and maximising workflow efficiencies. Before reading this, we recommend reading: When you should upgrade to an ERP system? to determine if your business would benefit from an ERP system.
Each of the “costs” of a system should also lead to a benefit, so the rule of thumb would be: if you can’t realise the benefit, then reduce the scope or the cost.
The key costs for ERP implementation are: software licensing fees; additional servers and/or hardware; ERP features and customisation; data transfer and conversion to the new system; testing; training; and support post-implementation. You should obtain a budget from your software provider to find out the cost of ERP implementation. This will help you forecast financial projections, labour cost reduction after ERP implementation and determine the expected ROI.
Software Licensing Fees
With two pricing models on offer for ERP systems you can choose the one that suits your company needs: on-premise systems or cloud-based subscriptions.
On-premise systems require host servers at the business location and offer permanent licenses instead of ongoing subscription. This is particularly useful for larger businesses, as they are able to support this with their existing infrastructure. If you have many users, the longer-term costs to support many users are usually less per user on your own server, if the infrastructure is maintained and supported.
Smaller to medium businesses may struggle with the upfront costs of on-premise systems, as hardware can add 20% to cost of ERP system and is therefore expensive to scale up as the business grows. Small businesses may benefit from cloud-based systems instead. Cloud-based systems are flexible and able to grow with your business. They also incur no upfront license or infrastructure fee, as their subscription pricing is based on user numbers and/or transaction rate. Cloud-based systems are usually guaranteed to be available from any device, anytime. All the infrastructure maintenance is done for you and no expensive capital upgrades as version updates are released.
It is important to consider your company’s existing infrastructure, projecting user and transaction growth rate along with your budget to choose the best option for you.
The ERP features your business requires will change the cost of your ERP system. Many ERP vendors sell features in modules. Adding a specific module can greatly benefit the applicability of the ERP system. However, to reduce unnecessary costs and avoid the risk of being oversold features you don’t need, you should choose an ERP systems that covers majority of the processes your business requires and invest wisely in only the features you need. Some non-negotiable processes your business may require include: accounting; financial and inventory management; or CRM (Customer Relationship Management). It is also important to consider the future of your business, such as multi-currency or multilingual capabilities, as these may be cheaper to include from the outset rather than adding them later.
Customising or aligning your system interface with the process flow of your business may greatly improve business efficiencies and pay for itself over and over, in which case you are leveraging more of the ERP features.
The setup cost of an ERP system depends on the customisation required: the more customisation needed, the more expensive the system will be. The size of the organisation also often affects the customisation cost, as larger businesses may require more specialised ERP solutions.
The best way to save money is choosing an ERP system that covers majority of your needs with off-the-shelf functionality and then adding fewer customisations. ABC Business Solutions is an expert across multiple ERP systems and can minimise the amount of customisation that is required and therefore cost for your business.
Maintenance and Upgrades
It is important to consider your ERP system as an investment. Therefore, your company should consider if it is able to support your ERP system financially over its lifetime. Your business should budget 15-20% of your software budget for ongoing support and maintenance. Upgrades are vital in maintaining the usefulness of the system and minimise the risk that the system becomes clunky and obsolete. Support is especially important if an issue arises in your system.
Many entrepreneurial business owners see the opportunity for enhancements over time. One of the key benefits of an ERP system is the ability to adapt over time, as the business needs change, or as a holder of all-important information, add competitive advantage through analysis and enquiry of the trends captured.
Implementation incurs approximately half of your upfront costs and covers: overall planning and organisation of the project; prototyping; installing software; system configuration; and completing data conversion. The longer and more complex your implementation is, the more expensive the cost is. These costs can be minimised by creating a well-considered plan that covers: the functional requirements of the software; degree of integration; third party applications; and user costs including training and management.
If the implementation is completed by a skilled professional, who is aware of broader commercial aspects, and can leverage competitive advantage and increase productivity, then the implementation could be seen as an investment rather than a cost.
Change Management can be an explicit cost, along with the number of people requiring the training. However, having a fully trained team, who can maximise the value of the investment in the system will pay for itself over and over again.
Data conversion, staff training and unanticipated customisation or re-engineering may take more time and resources than were plan for. It is particularly useful to develop a contingency budget of 10% of the implementation cost to plan for unforeseen expenditure. You can save money on training by preparing a few employees to train the rest of your team.
It is important to invest in the training of your staff early to increase the likelihood of a successful ERP implementation, which leads to faster return on investment.
The bottom line: is it worth investing?
ERP systems streamline operations, increase efficiency and boost productivity with a centralised and easy to use solution. It is worth the investment if you integrate training from the start of the implementation stage, as this allows you to maximise what you get out of your software.
The features offered by different ERP systems vary. Integrated Logic can help you decide what system is best suited to your business. Contact us today for a consultation.
Integrated Logic is happy to provide you with assistance and more information on the licensing available to allow you to make the best decision.
Integrated Logic is able to offer on-going support for your business over a number of plans to suit your budget.