An Exhaustive ERP Cost Breakdown

    8/19/20 10:00 AM

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    Some background before we begin

    The process to evaluate and choose an ERP software is not a simple task; as a matter of fact, it is a complex task. Because of the risk and cost, it’s a big decision for a company, big or small, to find and implement an ERP. I have numerous conversations with companies that are going through this selection process, and if they don’t bring up the subject of cost in our first conversation, then I do because it is so important! To help you set a realistic budget for your new ERP system, read below for a list of costs you should plan for.

    Software

    This is probably the most obvious ERP cost and at the top of everyone’s list. ERP software has different pricing models, but the vast majority fall in one of two buckets: a perpetual license with maintenance or subscription-based model.

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    First, let’s talk about perpetual with maintenance. The cost for this type of model is a one-time, “up front” fee to license the software. The fee can be determined by a variety of ways, but usually by user, site, device, or some combination thereof. The maintenance portion of this is typically a percentage of the price you paid to license the software. It usually covers bug fixes, software updates, and possibly technical support. Different vendors do it different ways, so it is important to understand what your fee includes. Maintenance is typically renewed annually, so it is an ongoing ERP cost. However, it is not always required to renew each year, so this cost potentially could be avoided (but at quite a bit of risk since you would not be supported by the ERP vendor).

    For subscriptions, the software license fee, support, and maintenance are all bundled into one price. The subscription fee is fairly straightforward and as long as you are paying it, you have access to the software and support. The subscription is valid for a term (a common term is 36 months); if you do not renew, you won’t be able to access the software. In a subscription, the ERP vendor typically provides the infrastructure to run the ERP, thus eliminating the need for…

    Hardware

    If you are choosing the perpetual pricing model, you are most likely going to need hardware—unless you already own infrastructure that will support your ERP. The necessary hardware can vary quite a bit between vendors, so it is important to understand what sort of infrastructure your ERP needs.

    Implementation assistance

    Most companies require assistance from someone to move off of their existing solution to a new ERP—this is the majority of the cost for ERP implementation. These services are usually provided by the ERP vendor or an implementation partner, and include, but are not limited to: project management, data conversion, training, process engineering, testing, cutover, and post go-live support. These ERP costs can vary widely, because every project is unique. Some businesses are simpler than others, while some companies have more resources.

    Related: The Hidden Costs in ERP Implementation

    Internal resources

    Most companies dedicate resources to an ERP project; while this is not a hard cost like the fees you pay an ERP vendor or implementation partner, dedicating valuable employee time is a cost nonetheless. Understanding what resources you can assign to the project helps get a more complete picture of cost. Sometimes companies can reassign or shuffle employee responsibilities to make sure they are available for the project. This is more common in smaller businesses where people typically wear many hats—versus bigger companies that might have the funding to hire a new resource to manage the project.

    Related: Common Structures of an ERP Team

    Related: Implementation Roles & Responsibilities: How to Build Your Team

    Ask Cost Questions

    Don’t be afraid to bring up ERP costs early and often if you are evaluating different systems. And don’t rely on the ERP vendor to bring it up, because they may not bring it up at all. Asking cost questions will save you a lot of time in your selection process.

    Most companies don’t evaluate ERP on a regular basis. If you are looking for ERP and not sure where to start, how about talking to an expert who is not a sales person? Click here to learn more about Jack Shannon, and sign up for a free phone consultation to discuss your situation.

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    Bryan Foshee

    Written by Bryan Foshee

    Bryan is a Regional Manager at Visual South and has been working with the company since 2002. Prior to that, he was a consultant and implemented SAP in manufacturing, distribution, and service industries.