How much does ERP software cost? Well, in the corporate world, ERP tools or software are one of the major crucial things that allow large companies to manage their resources. So, surely it will cost you whether you want to purchase or built one for your company.
Nowadays, most enterprise agencies, multinational companies are using ERP software to lessen their manual hard work. It is obvious that using automated software does the resource management work in less time more accurately than a human being.
However, we will try to help you understand the cost of ERP software with some industry insides that our experts have experienced practically. Without further doing, let’s dive into the next section and try to understand the ERP software system.
Understanding ERP Software System
Implementing the ERP software is not free. It is not cheap software to install in the company system. You may have to allocate a decent amount from your company budget for ERP.
So, how much does ERP software cost? It depends on many factors. You need to understand the complete ERP guide before going into ERP prices.
ERP Systems Modules
Users consider ERP as a one-stop solution for smooth company functions. So, what is an ERP solution? The primary idea of ERP is to create a centralized database system.
ERP provides companies with a standardized business process, and this system allows organizations to manage their business activities. This includes collecting data, managing resources, and increasing collaboration.
ERP system works with different departments of a company. They are usually known as the local ERP system modules. There are a total of 8 modules under the ERP system.
Accounting and Finance
The first module under the ERP system is the accounting and finance department of the company. This module works with a company’s financial models, and it includes budget planning, revenue and tax management, and accounting resources.
Customer Relationship Management (CRM)
The CRM module focuses on the end customers of a company. The primary function of the module includes marketing activities. The module enables employees to track promotional results. This can further allow employees to understand total sales revenue. Thus, employees can generate strategies to increase product sales.
Supply Chain
The supply chain is one of the most important modules of the ERP system, and the module works with tracking the complete pathway of goods. Companies can check processes of manufacturing, warehouse activities, and product distribution. Finally, this module tracks how products are reaching the customers. The supply chain module includes many features to work with. These are scheduling, inventory, shipping, tracking, and delivery.
Inventory Management
Another essential part of the ERP system is inventory management. The concept of this module is to manage final goods for better sales. This means that you can check the product stack before making deliveries. It also includes managing order numbers according to product readiness. Inventory management is another crucial module of the ERP system.
Manufacturing
This module is specially designed for manufacturers. The manufacturing module offers services related to the production of goods. It is also essential for maintaining product quality. If you can ensure good quality, the product lifecycle will enhance as well. The module offers features like quality control and production planning.
Human Resources
The human resources module works with a company’s workforce, and it allows companies to hire skilled employees. These employees will ensure effective workflow. As a result, the company will function in the most efficient way possible. For this, you can use applicant tracking, time management, and performance enhancement features.
Business Intelligence
The final module under the ERP system is business intelligence. This module works with creating and implementing business strategies. As a result, companies can make the best decisions for business growth. The module includes some very technical features. This involves ad-hoc, visualization tools, and real-time data access.
How Much Does ERP Software Cost: 4 Total Costs of ERP System
The costs of ERP software can vary depending on many factors. So, it is always tough to determine the exact budget. But there can be 4 different types of costs you will incur for the software. These costs will impact significantly on the total expenses of ERP software.
Software Licensing Model
The first cost to consider is the license fees of the software. ERP is a highly advanced system for companies. So, you will need to have authentic software before implementing it into the company database. And this will cost you a significant amount of money.
There are different licensing models you can find. But the most authentic ones are as follows:
Subscription Licenses
Subscription licenses are generally known as the Subscription as a Service (SaaS) model. You can choose this model when you are using cloud-based ERP systems. This type of licensing is much easier to understand.
Subscription means paying monthly payments to use the system. So, you will need to pay a monthly fee to subscribe to the ERP system cloud. This amount will vary depending on the number of users. You can add or remove users as much as you want. But a downside of the model is that the costs will be higher when there are many users.
Perpetual Licenses
The perpetual license model is great for on-premise ERP software. So, how does this model work? You will be buying a license to use the ERP system, which means that you will own the system. You will also need to carry the maintenance and upgrading fees. But it is a much better investment in the long run.
Implementation Costs
ERP implementation cost is the second type of cost you need to consider. The cost of ERP implementation can also vary depending on the model you choose. There are a total of 3 models to choose from.
Fixed-bid ERP Implementation
A fixed-bid implementation model is a fixed-price approach. This means that you are spending money on a fixed approach to the system. So, you get a constant and repetitive usage out of the software.
This type of implementation method is most suitable for specific projects. It is a cost-effective approach to implement the system. But there are some boundaries. The most significant downside is losing some important features of the system. Your functions will be limited. If you wish to add extra features, it will cost a high amount of money.
Time and Material ERP Implementation
This is the most popular method of ERP implementation. As the name suggests, you are paying money over the time you are using the system.
The method is more tailored as you can find solutions to your needs. So, the costs will vary depending on the materials you choose. For instance, you can use dedicated resources for projects with many stakeholders. This will ensure that you take fewer risks and add lower costs features later on.
But a downside of the method is that it is the most expensive of all. You can incur higher hourly rates as the waiting time is often included.
Recurring Model
It is the final model of ERP implementation. And this model is the most effective one. The idea of the model is to pay daily or monthly fees.
This model carries benefits from both the previous models. Firstly, you will not be paying the increased hourly rate from the T&M model. And conversely, this model allows flexibility like the fixed-bid model. But the most prominent downside is the high risks on your investment in this model.
Modification and Customization Costs
The modification and customization costs will vary from company to company. If your company runs on traditional methods, you will not incur much of these costs. But the situation will not be the same for companies with unique processes. Those companies will need to modify and customize the software to suit their needs.
The modification costs can be very high. Simple customization can be very expensive. You will need to assess the costs against the benefits you get from the changes.
Ongoing Costs of ERP
Every software has ongoing costs attached to it. These costs are maintenance costs that users incur, and ERP is the same. You cannot expect to forget about it after implementing the software. There are 4 types of ongoing costs you may incur.
Web Hosting Fees
Hosting fees are money paid for hosting a private cloud ERP system. You will need to pay this fee as hosting subscription fees.
Infrastructure Maintenance Fees
An on-premise ERP system means that you own the software. So, you will have to pay for its maintenance. And these expenses can vary depending on the updates you need to bring to the software.
Maintenance Fees
You will need to pay this type of fee for the perpetual licensing model. The model requires you to pay the maintenance fees annually. These fees cover bug fixes, updates, and vendor support of the system.
Software Upgrades Fees
Using the latest version of any software is very important. You will need to collaborate with your vendor to update the ERP system every now and then.
3 Factors Affecting ERP Pricing
If you wish to buy ERP software, some things can affect the final costs. Here are 3 of the factors that can affect ERP pricing.
Total Number of Users
The number of users can change the final price of the system. This highly depends on the size of the business. A small to medium-sized business will not have many users. As a result, costs will be much lower. These companies will also need basic functioning ERP systems. So, it can lower the final pricing as well.
Deployment
Deployment is the second major factor affecting the price. There are 2 types of deployment models. These are on-premise ERP systems and cloud-based ERP systems, and the cloud-based model is a much cheaper model than the other. An on-premise system means that you own the software. Thus, you will incur several different fees.
User Training
ERP is a complex system to handle. If you are a newcomer in this arena, your employees must know how to use it. So, you will need to arrange training programs on handling the software. And training usually involves a continuous increase in costs. The software will upgrade frequently. As a result, you will need to arrange training programs for the staff of the company.
Frequently Asked Questions
How Much Does an ERP System Cost?
The cost of the ERP system depends on many things. You will need to consider the implementation, maintenance, updates, and many other costs. Also, the size of the business will determine the final pricing of the software.
How Does the Cloud Affect ERP Cost?
The cloud-based ERP system means that you are subscribing to the ERP cloud. This will allow you to pay monthly subscription fees only. As a result, you will not be paying any extra maintenance and infrastructure fees. This can reduce the final pricing of the ERP system.
Conclusion
Allocating the budget for software implementation is a huge decision. This is also an important decision for the company. It would help if you thought long-term about this.
But how much does ERP software cost? You can never be sure about the exact amount. Thus, it is best if you follow a rule of thumb. You can allocate 1 to 2 percent of your annual revenue for software implementation.
