How to Figure the Cost of an ERP Implementation
If you've been shopping for a new or upgraded ERP Solution, you realize it will be a significant investment in your business. You'll want to get it right. After all your research into various solutions and their functionality, a crucial question will be how much will it cost? Choosing a software platform is just the beginning.
The cost of a complete ERP implementation project depends on many factors. Your industry, size, location, and the complexity of your requirements will all affect the cost of your ERP implementation project. Also, it makes a difference whether you choose an on-premises or cloud-based solution. And a large part of the cost will be for internal resources.
In this post, we'll give you some guidelines for figuring the cost of your ERP implementation and the ongoing fees. A trusted technology partner like Clients First can fine-tune an estimate for you.
ERP implementation costs
The sticker price of the ERP software you choose will be just a fraction of the entire implementation project's cost (15-30%). Laying the groundwork, getting your team onboard, training, and ongoing support will make up most of the expense (40-60%). Choosing a cloud-based solution such as Dynamics 365 Finance & Supply Chain, Dynamics Business Central or Acumatica can lower upfront infrastructure costs and save money on IT support. Still, you may incur higher monthly or yearly charges. Annual recurring fees will not be included in the implementation quote, but they should be considered.
A typical ERP installation for a mid-sized enterprise will range from $150,000 - $750,000.
TIP: Don't purchase from a software based on price - work with the best partner for your business. One that you are comfortable with and that shows an understanding of your business. Don't expect them to know everything, but enough to demonstrate and discuss your business intelligently.
Vendors have different pricing models depending on the amount of customization and support you need. The software costs will generally depend on the following:
1. The size of your company and the number of software users
How many users will need to access the ERP software? The more users, the pricier the software licensing costs. Acumatica offers an unlimited user license ERP, and you purchase the modules you need. Microsoft Dynamics employs a user count, but get all the modules and you can add users anytime.
2. Your industry and the complexity of your processes
For specialized industries, it may be a challenge to find an ERP solution that will meet all your needs out of the box and don't expect it to. Every company has unique requirements that are typically customer driven. Your project may call for customization and third-party add-ons. The extra integration work and software will increase the cost. Most SaaS software providers have made it so much easier for partners to create custom code that is minimally if at all affected by upgrades. Same with integrations in today's technology.
Manufacturers and MROs have higher software and service costs due to the addition of industry requirements. Organizations with multiple lines of business may also have additional conditions that will affect the software and implementation project costs. Do not be surprised that your manufacturing ERP system is twice the cost of your distributor golf or tennis buddy.
3. Number of locations
Businesses that operate in multiple locations will also incur additional costs. Your software partner can break down the additional charges for you.
4. Licensing costs
The ERP's database management system licenses are usually bought separately and not included in the implementation quote. A Software-as-a-service (SaaS) or cloud-based deployment can eliminate license costs since your SaaS company or the software firm provides data management as well as technical support, upgrades, backups, etc.
Some vendors may use a free database system like MySQL, while others may recommend paid-for plans. Most ERP solutions use Microsoft SQL Server or Oracle. Both databases are priced based on the number of users and the number of servers (CPU).
You can find the current price structure for SQL Server, Oracle US, however even the cloud solutions like NetSuite, can have additional costs like Java.
5. Infrastructure Cost
The cost of the hardware needed to run your ERP system will vary depending on what you have and what your need. These costs generally cover backups, storage, desktop computers, and server infrastructure and can be 10-20% of your project.
Cloud-based and hosted solutions can usually operate on any pc or Internet-enabled device, so on-premises servers are not required to support the software. Ask your ERP vendor if their cloud-based solution includes offline database entry. Many, but not all, ERP solutions have mobile apps that will work offline.
Tip: Excellent Internet service is crucial. Many companies moving to software as a service will have two ISPs, one with high availability and bandwidth and hardwired, and a backup delivered by another method such as satellite. If one fails, for instance, due to a natural disaster, you'll still have access.
5. Human resources costs
The majority of your ERP implementation budget will go to human resources. Many of your employees will be involved during the implementation phase, and wages for your internal team can reflect over 50% of the project's cost. Some super-users may need to spend more than half of their paid time working on the new system during implementation. Also, you may need to hire temporary workers to replace the employees working on the ERP project. If you choose a solution with a familiar interface, like Microsoft Dynamics, you'll have a larger hiring pool, and they will require less training.
6. Recurring costs
The recurring costs of an on-premises ERP solution will vary among vendors. Some software vendors keep their implementation prices low but charge high renewal prices. You'll not want to be surprised each year, so be sure to ask upfront.
SaaS options are often month-to-month subscription-based or have an annual renewal, which can typically increase the project cost by 3% to 10%.
Renewal fees for a standard perpetual license are 10% to 20% of the software costs.
Who should you buy from, partner or direct?
Some of the software vendors sell direct and also sell through with partners which can cause a conflict which typically does not work out in the customers favor. Both underbid and deliver short to win the business and then the customer is stuck with a system that does not work. (This statement is based on 25 years of working in this industry.) Some software vendors only sell primarily through Partners which include Acumatica and Microsoft Dynamics. You get the best price and the attention of a Partner that's best interest is for you to succeed. In our case, as a Partner we focus on niche markets which we have a proven history of success like MRO for aviation and heavy equipment, Manufacturing, Projects and Services and of course nearly every customer has some distribution too.
Clients First Business Solutions provides a wide range of competitively priced ERP solutions to modernize and streamline your business. From inventory, services, and manufacturing operations to sales and accounting, we put mobility, BI, and analytics at your fingertips. If you would like to know more about ERP software solutions for your business, contact our experts at Clients First.