The definitive guide to ERP implementation costs
February 8, 2024
ERP solutions are costly, so you should ensure your company can afford to implement one. Multiple factors affect an ERP’s final price. Carefully considering your business specifics and ERP pricing factors, you can get a ballpark estimate of your ERP implementation project and decide whether the investment is worthwhile. Meanwhile, professional ERP consultants can analyze your business needs and requirements, create a detailed project plan, and provide an accurate estimation.
In this guide, we share ERP implementation cost factors, give examples of popular ERP vendor pricing, and give actionable cost-cutting tips to help you minimize cost overruns.
How much does ERP cost?
Creating an ERP budget can be challenging, with the cost depending on many factors, ERP vendors obscuring their pricing plans, and ERP implementation partners having complex pricing structures. To help you, we share how much a mid-sized company can roughly spend on an ERP solution.
Note: These are ballpark estimates given for general understanding and are not Itransition’s official pricing.
ERP implementation cost factors
The following factors impact the final ERP implementation cost:
- Functionality – the more capabilities and functional modules you implement, the more expensive the ERP implementation is.Â
- Customizations – most ERP vendors charge extra for modules not included in the core price, industry-specific features, and advanced functionality; so many companies with specific workflows opt for custom ERP development as a more cost-efficient option.
- The number of ERP users – many vendors charge per user, so the more people use an ERP, the more expensive it gets.
- Transactional volume – typically increases with the user count and is dictated by business size.
- Integration scope and integration approaches.
- User training – some vendors offer essential training services for free, but customized ERP training on-site comes with additional costs.
- Organizational structure and geographic footprint.
- In-house IT specialists’ expertise and availability to assist with ERP implementation.
- ERP implementation partner’s experience and implementation methodology.
Contact our experts to get a ballpark ERP cost estimation
5 types of ERP implementation costs
Here are key aspects to factor in during ERP planning, grouped into direct, ongoing, and hidden costs.
Software licensing costs
If you choose an off-the-shelf ERP platform, an ERP software license is an essential budget item. ERP software vendors traditionally offer two pricing models: perpetual and subscription-based. To decide between the two options, you can audit your existing infrastructure and security requirements and estimate the possible growth rate of your user base and transactional volumes.
Perpetual
Subscription-based
Pricing model
Perpetual
Subscription-based
A company pays a one-time upfront fee to access the ERP platform.
A company pays monthly or yearly for accessing the ERP software.
Cost
Perpetual
Subscription-based
The fee can be based on the functional scope, system configuration/customization, and the number of users. The price doesn’t include recurring costs like maintenance, support, and upgrades.
The fee depends on the functional scope, system configuration/customization, and the number of users or resources consumed. The price includes maintenance, support, and upgrade costs.
Strengths
Perpetual
Subscription-based
Straightforward total cost of ownership No ongoing subscription costs Potential TCO reduction in the long run
Cheaper to start Access from anywhere/anytime by default Greater flexibility and scalability
Limitations
Perpetual
Subscription-based
Large upfront investments Unavailable across different geographical locations Scaling requires further infrastructure upgrades
Ongoing subscription costs can outweigh the cost of the perpetual license, especially for larger businesses Complex cost management due to potential spikes in demand Vendor lock-in
Best for
Perpetual
Subscription-based
On-premises deployments Larger companies with sufficient infrastructure to support the ERP software
Cloud deployments Smaller businesses aiming to grow and be flexible
Infrastructure costs
Infrastructure costs can include:
- Hardware costs for hardware devices and equipment to host the ERP system on-premises. These include storage, servers, physical space, cooling system, network, and power consumption.
- Hosting or cloud fees for using cloud resources for ERP solutions deployed in the cloud (except for SaaS).
- Additional device costs for mobile or other handheld devices that enable remote access to the ERP solution, wireless scanning, electronic signature capture, and other operations.
Infrastructure costs greatly depend on the chosen deployment model. This way, deploying an on-premises ERP system implies heavy upfront investments. In contrast, cloud deployment allows companies to rent resources on an as-needed basis.
Personnel costs
Personnel costs include the cost of labor for ERP consulting, development, and implementation. To estimate the personnel budget, you need to factor in the average market hourly rates of ERP consultants and developers and the project’s implementation timeline.
You will pay your ERP team for the following:
- ERP consulting (business analysis, solution conceptualization, design, and software selection)
- Project management
- ERP configuration/customization
- ERP development
- User training
- Quality assurance and technical deployment
- Performance tuning
Ongoing ERP costs
Apart from the implementation costs, ERP systems can incur ongoing costs for:
- Сloud resources
- ERP infrastructure maintenance and upgrade
- ERP solution administration
- Customer support packages, including priority support and access to a dedicated customer service manager 24/7
Hidden costs
Here are some not-so-obvious costs that you need to make provisions for. To successfully address unseen expenditures during and after the ERP implementation, we recommend having about a 10% contingency budget for the ERP solution cost.
- Training costs for new employees
- Data management costs, as the amount of data grows and data operations grow more complex
- Temporary personnel costs during ERP implementation
- Change management costs for ERP improvement
- Security costs for creating a security management framework equipped with data encryption, multi-factor authentication, user permissions, and other tools.
Get a clear picture of your ERP implementation cost
Sucess stories
80%
manual tasks automated
An Odoo-based fleet management solution
Itransition delivered a BPM solution for the automotive maintenance service provider to automate the daily tasks of service managers and technicians. The solution reduced operational expenses by 50% and increased client satisfaction due to operations transparency and faster service.
100%
accelerated work order management
ERP system for a repair and maintenance service company
Itransition implemented a cloud-based ERP solution with Odoo, which automated multiple business processes, minimized manual operations, reduced purchase order approval time by 50%, and automated 90% of manual tasks.
5 tips to reduce ERP implementation costs
Here are some proven tips to help you save money on ERP implementation without undermining the solution’s value:
1 Negotiate software licenses
ERP vendors' licensing and pricing have become increasingly complicated and differ from vendor to vendor. Thus, thorough platform research, a flexible negotiation strategy, and a skilled negotiation team are a must to reach optimal software agreements. When working with ERP vendors for the first time, we recommend turning to professional ERP consultancy or hiring a trustworthy ERP implementation partner to help you decide whether a longer-term commitment in exchange for better ERP pricing is a good option.
2 Be meticulous about large cloud contracts
Many companies choose cloud ERP software for its low entrance fee, believing that long-term commitments will save them money. However, even though cloud ERP providers take care of software maintenance, the reality is that you can spend more on annual fees than on an on-premises ERP solution, especially if you have a large user base and huge transaction volumes.
3 Rationalize the use of external resources
Ensure your ERP implementation partner does not overstaff the ERP project. To avoid overprovisioning human resources, look for maximum accountability and transparency as well as focus on comprehensive project planning and timely delivery of project documentation.
4 Avoid excessive customization
Be mindful of your company's requirements and avoid unnecessary customizations. You can opt for packaged ERP software if it covers 80% or more of your functional scope. Firstly, customizations of most off-the-shelf solutions are relatively pricey and can result in cost overruns. Secondly, customized software might not get updates from the vendor since each release would require a change in the custom code.
5 Draw up the ERP feature set
ERP scope expenditure and uncertainty are critical reasons behind ERP project budget overruns. To avoid paying more for the functionality you don’t need, you have to carefully plan key ERP features based on your budget and key requirements. First, focus on the most immediate business needs and then consider additional functionality. Finally, when drawing up the functionality scope, try to remain flexible about accommodating business growth.
Budget your ERP project with expert help
Pricing is an essential factor for any business investing in an ERP solution, and in this guide, we have covered all the critical aspects to help you set realistic ERP budget expectations. To get a more accurate evaluation, you can turn to Itransition. Our ERP experts will analyze your business case, come up with a relevant ERP software implementation scope, estimate needed efforts and resources, and prove the ERP initiative is worth investing your time and money in.
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