July 6, 2023
The following factors impact the final ERP implementation cost:
Here are key aspects to factor in during ERP planning, grouped into direct, ongoing, and hidden 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.
A company pays a one-time upfront fee to access the ERP platform.
A company pays monthly or yearly for accessing the ERP software.
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.
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
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
On-premises deployments Larger companies with sufficient infrastructure to support the ERP software
Cloud deployments Smaller businesses aiming to grow and be flexible
ERP projects require heavy investments. To ensure they are worthwhile and justify them to the decision-makers, you must carefully consider how your business can benefit from implementing ERP. Here are some of the main ways ERP can bring a return on investment:
due to routine tasks automation, duplicate work reduction, and creation of a single source of truth.
due to freeing them up from mundane data-handling tasks.
and minimized stock-outs due to increased supply chain visibility and supply and demand balancing.
due to better data capture and analysis, fewer human errors, and reduced delays caused by slow, siloed, and outdated systems.
due to the availability of 360-degree customer data, which helps deliver omnichannel customer experience, targeted and personalized support, faster response times, improved order accuracy, and smoother deliveries.
for regulatory non-compliance due to a centralized approach to data security and governance.
due to enhanced communication and collaboration between departments across geography and time zones.
due to the protection of most sensitive data from unauthorized access with comprehensive data security mechanisms.
Scheme title: Organizations that realized expected benefits (percent of respondents)
Data source: Panorama Consulting Group — The 2022 ERP Report
Here are some proven tips to help you save money on ERP implementation without undermining the solution’s value:
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.
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.
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.
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.
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.
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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