In the changing global dynamics, one thing that is gaining currency these days is ERP and the ERP cost is skyrocketing. This software helps you manage your business in the most efficient manner, giving you added advantages. But an important element that you must keep in mind before getting onboard is the ERP cost.
We are here to help you with all that you need to know about ERP, so keep reading!
Each ERP software comes with a set of standard features, which may differ across vendors. You must be aware about these before choosing the best ERP for your firm. Here is a list of five basic modules of ERP, which might help you make a good choice:
- Accounting/Financial Management: This module helps you balance ledgers, maintain accounts and improve centralization of tasks further making management easier.
- Human Resources Management: This module helps you with keeping a check on the employee payroll, benefits, and other things all under one heading.
- Inventory Management: You can find your stock quite easily and quickly by employing this module. It also works well with locating certain objects out of the many.
- Marketing Automation: This module lets you develop email campaigns and boost customer retention methods among other things. In this manner, you can promote your business quite easily.
- Customer Relationship Management: You can keep a check on the client satisfaction rates, reviews and interactions with just a click. This really has a positive impact on your business and shows a “customer-first” mentality.
ERP System: Price and Cost
Each ERP costs differently based on a set of factors. They can be valued as high as $10 million to as low as $100,000. You can consider the following factors before buying any ERP software for yourself:
I. Organization Size
If you own a small business, your requirements will be less and so you can make do with the basic ERP software. This software will cost relatively less. However, if your business is big you will need a better software that costs more.
II. Implementation Complexity
Larger organizations have complex implementation procedures due to the large amount of data that they have. Hosting ERP on internal servers also adds complexity and additional costs. So, you need to keep the implementation process in mind as well.
As a business, you should try to add only those features that you require. Making unnecessary customizations will just add to the cost of ERP for you and do no good. Be smart enough to make a list of the actual features that you think are important for the growth of your business, before investing.
IV. Important Features
Certain businesses require additional features for their website to do well and if your business fits into this category then, you should be prepared to pay a hefty amount for ERP. As mentioned above, only add those features that are really important for the growth of your business.
ERP Software: Cost
To be sure, the average cost of ERP implementation is around $7200. Remember that the actual ERP cost may vary based on the needs of your business. The factors listed above play a crucial role in deciding the cost of the ERP software that you may employ for yourself. Therefore, you need to think before you spend, for which you can hire consulting professionals.
7 Factors that Influence ERP Software Cost
Here is a list of seven main factors that affect the ERP cost significantly:
I. ERP Licensing Model
Be sure to understand which pricing model would suit your business and work well with it. Several software offer a little of everything so you must ensure that what you buy is a value for money product. Carry out some research before choosing anything because you cannot just put your money into anything unnecessary.
II. Additional ERP Modules
Generally, ERP systems have low initial costs for the basic package but, you must pay extra for each customization. So, always remember to only choose those modules which you actually require in order to save money. Unnecessarily adding features is only going to be burdensome in the end and add to the ERP cost.
III. ERP System Customizations
While over-customizing can cost you more you must not forget to at least customize your ERP to some level, to fit your company precisely. Try opting for unique ERP customizations to make your business stand out. This will help people differentiate between your firm from the others because nobody wants to see repetitive stuff.
IV. User Training
You need a well-trained team to work things out for you. If you undertake this task, the ERP cost will be slightly more. You may use online resources that are free of cost to get the basic idea. Still, you may require specific resource training as well.
V. Implementation Partner
Be sure about who helps you with the implementation because choosing the wrong partner can be heavy on your wallet. Check their experience in this field to know more about them and whether they would be able to work as per your needs or not.
VI. Additional Support
Most ERP software provide a primary support package with email support and a knowledge base. As a business you may often require more advanced help to make the best use of it. For this, you may have to pay additional fee mainly further adding to your ERP cost.
VII. Maintenance and Upgrades
You may require and IT staff to maintain the ERP system and resolve any technical issues. This is because a lot of these systems do not have added assistance. Also, the majority of these systems do not get regular system maintenance or upgrades. So, you will have to bear additional costs on this as well.
Components of an ERP Budget
Before purchasing an ERP software, make sure that you create a budget. Here is a list of components you may consider before buying the adequate software for yourself:
- Software licensing fees
- Additional servers and network hardware
- Data conversion and transfer to new ERP
- Customization, if necessary
- Vendor/consultancy support post implementation
You can always consider other components before making a purchase. This reduces the ERP cost drastically because you only spend on what you actually require.
Software Licensing Model
You must know that an ERP software is licensed and not owned, for use. There are two main models concerned with software licensing. The cost varies based on your choice of model and the number of users who use it.
I. Perpetual Licensing
This model lets you host the software on its own servers. If you have a large business, this model is just what you want. It is expensive for small businesses because of the necessary hardware that it requires. However, it involves a one-time payment idea.
- Time efficient.
- Does not rely on cloud providers.
- You don’t have to renew your contract, as it keeps working.
- Constant updates for security purposes.
- It lacks mobility options, which cloud does not.
II. Subscription Licensing
If you want to use cloud servers for ERP software implementation, you may use this model. The ERP system is hosted and maintained by the vendor on a third-party server in this model. It is available as a Software-as-a-Service model, for which you may pay monthly or annual charges.
- Cost effective.
- More mobility with real-time access.
- Maintenance and updates are done by vendor.
- Takes more time.
- Increases reliance on cloud vendors.
- Constant internet access is required.
Installation and Implementation Costs
Implementation of ERP can be a costly affair. It is hard to determine the actual costs involved because of how complex the affair can be. But we have a solution for you. Here is a list of the obvious costs you may have to incur:
I. Additional Modules not included in Base Plan
The ERP cost for implementation varies based on size, complexity and customizations of your business. Generally, ERP software come with some basic modules that may work well for you, but you have to pay extra for each customization.
The ERP Software is a complex thing to handle and therefore, you need someone to help you with its successful completion. So, you must know that you will have to pay extra for an implementation consultant. This individual will help you with the smooth working of the software throughout the process.
If you are opting for perpetual licensing then you must pay extra fee for data servers and other hardware infrastructure to help the ERP system work efficiently. However, you need not worry if you are employing the subscription licensing for your business.
IV. Other Costs
There are certain other costs you might have to incur while implementing the ERP software for your business. These features are additional and not included in the base plan. Some of the common ones are IT staff, customer support, maintenance and upgrading among others. These are basic to its functioning so, you cannot miss out on them.
The infrastructure cost is determined by the deployment option that you choose. An on-premise implementation includes server costs, backup, storage and the cost of IT systems. In ERP implementation the overall cost is lower as everything is stored on the cloud and fewer IT employees are required. Moreover, certain recurring costs may add more to the price of an ERP software.
Non-Monetary ERP Cost
Not everything is financial when it comes to the ERP cost. You also have to pay attention to the non-monetary costs involved.
Time is very important in business and you should therefore, use it wisely. Be aware that ERP implementation takes about 6 to 12 months, on an average. If you are a small business, you may use seven internal resources but, a large business requires about 24 when ERP is deployed. So, you must think of the time that you and your employees may be losing in this whole process.
Remember that your business may lose its productivity rates because a lot of your skilled IT staff will be involved in the implementation of ERP. However, you should not worry as this phenomenon is temporary and all the things will get back to normal after the process of implementation is over.
Bottom-line on ERP Pricing
If you own a small business, you may have to pay something closer to two per cent of your annual revenue as minimum price for ERP. As and when your revenue will rise, this figure will come back to as low as one per cent and be light on your wallet. The percentage will vary for big businesses.
SaaS stands for “Software as a Service” and this ERP system has a different costing model. Under SaaS you have to pay a monthly or annual fee for each user on the system. Its vendors provide hosting services and your data reside on their servers. These data are taken care of by their IT resources only. Basically, this model is cheaper than the others and you can compare it to the license model by multiplying the annual SaaS fee by 3.
Business Process Review
Every business owner aims at not overspending in the entire process of implementing ERP systems. For this, you may ask the vendors to specify a fixed price for implementation. You can pay the ERP cost to them, before purchasing the software. This will also help them understand the help you need during the implementation of the ERP software to ensure its smooth functioning.
ERP Software can really relieve you of the unnecessary burden and stress that your business entails. Each software is priced differently, based on your needs and features. Therefore, you need to be smart enough to understand the needs of your business and the other factors involved in its implementation. Consider all the factors listed above to choose the best option for yourself. Once you get this aspect sorted, you will not face much trouble in the growth of your business.