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What is the Cost of Implementing ERP

Tue, May 24, 2016 @ 05:57 PM / 2 Comments / in ERP Software, ERP Implementation, erp pricing, cost of erp, Finding a VAR, medium size by Nancy Phillippi

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As a company begins to grow from a small to mid-size enterprise, it becomes more and more complicated to keep up with the company’s success. With growing demands and an influx of new data to manage, it can be difficult to continue to function at optimal capacity.

Implementing a Enterprise Resource Planning (ERP) system is what many manufacturing companies turn to help manage the work load. The process may not be easy, but when considering the time and effort it takes to collect, interrupt and keep track of data on a spreadsheet (especially if you are a medium to large size enterprise) it is well worth the time and money.

Price is dependent on Needs

The cost of the ERP software varies greatly depending on the company’s needs, such as:

  1. The type of system your finance and operations need to grow
  2. The size of your organization
  3. The desired amount of functionality
  4. The number of users/locations

These are going to be the biggest factors that will determine the price of the software license. Generally speaking, the more you need in any of these areas, the more the user license will cost.

Implementation has four Costs

The cost of the actual ERP software is not the only expense you have to factor in. The most anticipated part of a burger may be the patty, but it still needs the cheese, veggies and bun to be a burger. Similarly, the cost of implementation is made of different parts that make the overall grand total:

  • Human resources costs: 40% to 60%
  • Software costs: 15% to 30%
  • Infrastructure costs: 10% to 20%
  • Database management system costs: 5% to 10%

Cost of implementation breakdown

Cost of ERP Implentation, budget breakdown

The infographic above gives you a general idea of the impact each expense has on the overall cost of implementation. As I have demonstrated, the exact percentages vary depending of your company’s specific needs.

What are you paying for?

Human Resources Costs

Human resources is the bread that holds the operation together. It includes the implementer’s fee, consultation fee and your employees’ salaries during training.  Human Resources usually amounts to around 50% or more of the total implementation costs.

Software Costs

The software is it he meat of the operation and without it there is nothing to implement. In addition to the factors mentioned earlier for software costs, the industry of the company and customization costs also affect the cost.

The industry affects the cost because some industries require more functionality than others and if the software isn’t made for your industry it may require a lot of customization and extensions to meet your company’s needs.

Customizing your ERP software is necessary for many companies whether the software made for your industry or not. Determining the cost of customization is a bit trickier than determination the licensing cost because it requires a detailed look into your company’s functional needs. Some of those things to be evaluated are:

• The data fields you need to track and report

• Dashboard, management and operational reports

• The complexity of workflow

• User Interface changes

Of course, not all of these factors apply to every ERP system. For example, Acumatica has a one-time user/subscription fee, meaning that there is only one user fee is required for everyone in your company to get access. So, you’re only paying for the software and annual maintenance for a traditional license or, for a SaaS subscription, you pay an annual fee for the software, environment and maintenance.

Infrastructure costs

The infrastructure facilitates the software and keeps it operating. Similar to what veggies do for the body, without infrastructure the software has nothing to run on.  Infrastructure costs basically includes the cost of the hardware, backups, storage, desktop computers and server infrastructure.

Database management system costs

Let's face it, cheese makes the burger better. Database management systems does the same thing for the software. They are used to manage the storage, retrieval and automated updating of the data in a ERP system. The licenses for database management systems are usually bought separately from the ERP system but they can be included in the implementing cost. Microsoft SQL Server or Oracle are most commonly used.

Other costs

Although these were not demonstrated in the graphic, these are the ketchup and mustard that's added to the burger for taste.  Ketchup being data migration and mustard being the license renewal fee.

Data migration cost is determined by the amount of data being moved, the complexity of that data, the availability of migration tools, and the gaps of information between your current software and the new software. Because of these factors, the cost of migrating from spreadsheets is generally greater than migrating from another business software solution.

The typical license renewal fee is between 10% to 15% of the initial software cost. Recurrent costs vary because some vendors will have a charge a low implementation fee, then charge a high rate to renew the license.

Factoring all of the costs that go into the overall price of implementation, a standard ERP implementation for a medium-sized organization can cost anywhere from $150,000 to $750,000.

Of course, these are all broad figures to give you a general idea of what you are paying for and why it’s a necessary part of the process. The reality is that no two company’s implementations are going to be the same, because no two companies are the same. Despite varying needs, the majority of manufacturers seem to agree that ERP is the best option for modern business management.

If this article has intrigued your company’s interest in implementing a ERP solution, leave it to Clients First’s capable staff of professionals to help your company get started. Contact us at 800.331.8382 or sales@clientsfirst-tx.com, our sales team is waiting to hear from you.

Resources: http://blog.clientsfirst-ax.com/blog-1/-temporary-slug-3c1cb87b-0ca2-44d7-80cd-9394d0699444

Tags: ERP Software, ERP Implementation, erp pricing, cost of erp, Finding a VAR, medium size

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