Whether it’s to manage growth or gain insights into your business, a quality ERP system makes everything easier.
One question tends to linger: how much does it cost to implement an ERP system?
After all, ERP software is a big investment, and understanding the true costs beyond just the sticker price can help you make the best decision.
Let’s explore the costs of implementing ERP systems and the related factors that impact those costs.
When evaluating ERPs, it’s important not to focus on the software cost alone. That is just one piece of the puzzle. ERP implementation costs must be considered, and they include these five core categories:
Each category plays its own unique role in the total cost of implementing your ERP system.
The base price of ERP software is the starting point. Depending on your vendor, the number of users required, and modules needed, software costs can vary greatly. For example, manufacturers might need additional modules for inventory management or quality control, which can quickly increase the total ERP software and implementation costs.
If you choose an on-premise ERP system, the cost of the hardware needed to run it will vary depending on what you already have and what you need. These costs generally cover backups, storage, desktop computers, and server infrastructure, which can constitute 10-20% of your project.
Cloud-based 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.
Quick Tip: Excellent internet service is crucial. Many companies moving to software as a service (SaaS) will have two ISPs, one with high availability and bandwidth that is hardwired and a backup delivered by another method, such as a satellite. If one fails, for example, due to a natural disaster, you'll still have access via the alternate method.
One of the most significant and often underestimated ERP costs is personnel. Implementation requires a dedicated team to manage the project, provide training, and support the transition into the new ERP system.
As a result, consulting fees, internal labor, and project management can easily take up more than 50% of the total implementation budget. To aid the process, you may want to consider hiring an experienced ERP consultant, such as Clients First Business Solutions, who has support teams available to help you 24/7.
Ongoing costs include software updates, support services, and training for new employees.
If you choose a subscription-based ERP model, for example, these costs will be rolled into your monthly or annual fees. On-premises systems may have lower ongoing expenses but often require more internal maintenance.
ERP implementations can also come with a few hidden costs. Two examples include change management and cybersecurity upgrades.
Sometimes there is a need to hire temporary staff during the transition, which can also add unexpected expenses. How can you do this affordably? A wise strategy is to set aside about 10% of your budget from the start as a contingency to cover these unforeseen costs.
There are a few more implementation costs to be aware of as outlined below.
The majority of your ERP implementation budget will go to human resources, as mentioned earlier. Many of your employees will be involved during the implementation phase, and wages for your internal team can consume up to or over 50% of the project's cost. Some super-users may need to spend some of their time working on the new system after hours during implementation.
As we mentioned above, you may also need to hire temporary workers to replace the employees who are working on the ERP project.
If you choose a solution with a familiar interface, like Microsoft Dynamics, you'll likely have a larger hiring pool, and candidates will require less training.
The recurring costs of an on-premise ERP solution will vary. Some software vendors keep their implementation prices low but charge high renewal prices. You will not want to be surprised each year, so be sure to ask upfront about the recurring costs.
Renewal fees for a standard perpetual license are typically 10% to 20% of the software cost.
SaaS options can be month-to-month or have an annual renewal, which usually increases between 3% and 10% each year.
Now that we know what types of costs to expect, let's review a few factors that may impact the cost of implementing ERP systems.
Businesses that operate in multiple locations will have additional costs. Your ERP vendor can break down the additional expenses for you. This also includes the number of devices and users that have access to the ERP system in those different locations.
For specialized industries, it may be a challenge to find an ERP solution that will meet all your needs right out of the box. In fact, it’s best not to expect it to. Every company has unique requirements that are typically customer driven. Your project may call for customizations and third-party add-ons. This extra integration work and software will increase the costs incurred.
Manufacturers and MROs have higher software and services costs due to the addition of specific industry requirements. Organizations with multiple lines of business may also have additional conditions that will affect the software and implementation project costs.
It’s important to note that not all ERP systems come fully equipped to help businesses with their needs right out of the box. Many businesses need to customize their ERP system with industry-specific modules to meet their unique needs and requirements.
While these customizations improve the overall ERP workflow, they also increase the overall cost of implementation.
To obtain the most affordable solution, it is recommended you weigh the benefits of customizing your ERP systems against the potential long-term costs, especially when it comes to system updates, requirements, and maintenance.
Choosing the right licensing model, perpetual or subscription, can also significantly impact your ERP’s total cost of ownership.
With a perpetual license, you pay an initial license fee to own and use the software indefinitely, which is ideal for businesses that have the capital for large upfront investments. Over time, perpetual licenses often lead to lower long-term costs. However, the initial cost is higher, and scaling the system later may require additional infrastructure investments. There is also an annual renewal fee that is a percentage of the initial cost of the license.
On the other hand, a subscription pricing model lets businesses pay their fees monthly or annually, which typically includes the licensing itself, maintenance, updates, and support services.
One of the first decisions you’ll need to make when selecting an ERP system is whether to choose a cloud-based or on-premises solution. When deciding, it’s important to remember that each option has different implementation costs.
Cloud-based ERP systems have become increasingly popular due to their flexibility and lower initial costs. Because the software is hosted remotely, there’s no need for expensive in-house servers or IT teams. Updates, backups, and maintenance are handled by the vendor, which allows your team to focus on running the business.
It’s important to keep in mind that cloud-based ERP software does come with recurring subscription fees to be able to access the cloud software.
On-premise ERPs tend to offer you more control.
You own the software and manage it internally, providing you and your team with more security and customization features.
However, on-premise systems do tend to require higher upfront costs — both in terms of software and infrastructure.
With companies that have a strong IT department, on-premise ERP is a great option to grow the business.
Alt Text: illustration of an individual managing an ERP system effectively
Managing ERP implementation costs can feel overwhelming, but there are several strategies businesses can use to stay on track. Here are some tips from Clients First:
Some software vendors sell directly and also sell through partners, which can cause a conflict that typically does not work out in the customer's favor. Both can underbid and deliver short to win the business, and then the customer is stuck with a system that isn’t working for them. Some software vendors only sell through partners, which include Acumatica and Microsoft Dynamics. You end up getting the best price and the attention of a partner who wants to see you succeed.
As a partner, Clients First focuses on niche markets in which they have a proven history of success, like MRO for aviation and heavy equipment; manufacturing; projects and services, and distribution.
Implementing an ERP system is no small task, but understanding the total cost of implementing ERP systems makes the process much less stressful.
If you are interested in having a smooth and seamless ERP implementation process — one in which you can avoid mistakes and access support when you need it — consider working with a specialized ERP partner like Clients First Business Solutions.
Contact Clients First today to learn more about ERP implementations and how they can give your business the tools to help it grow!
