Whether you’re brand new on your ERP journey or have been considering implementing an ERP system for a while, one question you can’t escape is: How much does ERP cost? It’s a question you’ll be confronted with at every turn, so let’s break down what’s involved when it comes to ERP price and whether it’s right for you to move forward with enlisting the help of an ERP system.
What is an ERP System?
An Enterprise Resource Planning (ERP) system is a software solution used by businesses to plan and manage daily operations, like supply chain, manufacturing, services, financials and other programs or processes. Core goals of an ERP system include the ability to automate and streamline processes and acquire greater visibility and control into business operations so you can make more informed decisions that affect your top and bottom lines.
The greatest benefit to ERP systems is having one reliable source of truth for your company. With all business areas connected under one system, you can gather real-time data about your operations. This visibility can lead to better communication among departments, reduced costs, decreased downtime, more accurate and thorough reporting, improved relationships with customers and vendors, greater flexibility and overall optimized efficiency.
ERP systems are comprehensive solutions that often include key modules, including:
- Supply Chain
- Inventory Management
- Customer Relationship Management (CRM)
- Supplier Management
- Business Intelligence
How are ERP Systems Priced?
ERP cost depends on the type of deployment you go with and the breadth of the project. ERP vendors typically use one of two pricing models: subscription plans or perpetual licensing.
Cloud ERP Software
Many companies choose to purchase a subscription to a cloud ERP service that is managed by the cloud ERP company. Subscriptions are paid monthly or yearly for access to the service. Subscription plans often require companies to have a minimum contract length and come in various tiers with increasing functionality and modules.
Licensed ERP Software
Companies that want to manage their ERP software themselves on their own servers can purchase a license for ERP software that they can then deploy on their own system. This is a one-time cost paid up-front based on the number of users and level of customization. Perpetual licensing usually doesn’t include recurring costs like maintenance, support and upgrades.
How Much Do ERP Systems Cost?
The cost of ERP software varies widely based on several factors. ERP costs can range anywhere from less than $100,000 to over $10 million. To plan a budget for ERP software, you’ll need to consider the specific requirements your business will need from this solution. Consider the following factors:
Smaller companies will require fewer people on their licenses and will usually have smaller manufacturing and supply chain operations, which means less complexity when migrating systems. The larger your business is, the more you can expect to pay. Companies can avoid some upfront implementation costs by selecting a cloud deployment, which doesn’t require hardware implementation.
Larger organizations and sometimes organizations already heavily invested in a different ERP system may require more work and planning to migrate to a cloud ERP system. Hosting ERP software on internal servers also adds a layer of complexity and additional costs.
Some businesses may require more features for their ERP system than others, and those additional features and services may result in a higher license or subscription cost.
If a business needs custom features built into their system that are not ordinarily required, it may involve additional development and implementation costs. Businesses should focus on only adding the features they need.
Recurring ERP System Costs
Keep in mind that there’s more to budget for than just the ERP implementation. In addition to upfront costs, there are ongoing expenses to consider, like:
- IT Staff: Your ERP system will have to be managed, and an on-premise deployment will require internal IT staff to handle any technical needs that arise.
- Customer Support: While basic support, like knowledge base and email assistance, is typically included in the price of an ERP solution, more advanced support will require additional fees.
- Maintenance and Upgrading: Many on-premise deployments charge additionally for maintenance and software upgrades. However, if you pay a subscription-based fee for a cloud ERP deployment, the cost of maintenance and upgrading may already be factored in.
What is Involved in an ERP Implementation?
Implementation costs typically cover planning and organizing your project, training, prototyping functional areas of your business, installing software, configuring the system, implementing process changes and completing conversions. The complexity of implementing an ERP system will primarily depend on the size of the business and whether the ERP system is a cloud-based subscription or an internally hosted, licensed system. ERP system implementations are always complex to some degree, but these are a few of the main factors that will determine the extent of the migration work necessary.
- Requiring additional modules or advanced features
- Needing multiple customizations
- Whether you’re implementing via hardware or cloud deployment
You can likely plan on a software cost ratio of .75:1 to 1:1, however, a ratio of 1.5:1 or 2:1 is not uncommon for more complex or customized ERP initiatives, especially if the implementation will cover multiple sites or companies.
Implementing ERP with QAD
There’s no straightforward answer on ERP cost without assessing a company’s unique situation and needs. With the level of knowledge and experience at QAD, we can make the process of acquiring and implementing an ERP system smooth, setting you up for the highest level of success possible and streamlining your system setup to give you the greatest ROI we can.