How much does an ERP system cost? It should come as no surprise that the answer to that question will start with the phrase “It depends…” It depends on the number of users. It depends on the level of sophistication and complexity of the solution. It depends on the size and complexity of the implementation project. And it depends on whether you have to buy and install hardware along with the software, whether you will continue to use hardware and infrastructure already in place (perhaps with upgrades) or whether you choose a hosted (cloud/SaaS based) deployment strategy.
TIERS OF ERP COST
ERP software and suppliers are often discussed in term of “tiers”. Tier 1 products include the biggest products and vendors that serve the largest companies’ needs. In many cases, these companies compete for enterprise-wide contracts with ERP as a component of those agreements. Tier 2 and 3 mid- and small-market system vendors oftentimes have a tighter focus on a given opportunity’s needs rather than on managing the myriad components of a larger enterprise as a whole, including the non-ERP software needs of an enterprise. Additionally, Tier 2 and 3 solutions can align better to the budgets and specific pain points of small and midsized customers.
ERP system prices for software are generally competitive within a category of solution providers. For example, if you are considering a Tier 1 solution, expect their price quotes to be very similar. Tier 1 software is typically more costly than Tier 2 or 3, though in the end the final cost for any solution for a given opportunity may be remarkably similar.
ERP IMPLEMENTATION COSTS
ERP software price is only a part of the total ERP system cost. Following a common rule, software is 30% of total implementation cost, hardware might be another 20%, and half of the total goes for implementation services, data conversion, consulting and training. These percentages can vary quite a bit from 30-20-50 but the point is this: the software is usually quite a bit less than half of the total cost and in some cases could be as little as 10% of the total.
The larger, more complex solutions have a reputation for high implementation costs due to the complexity of the solution. Vendors find this (high cost) particularly challenging and continually try to simplify the process and reduce the implementation burden, with varying success. Suffice it to say that the less complex solutions generally are easier to implement, at a lower services cost, and quicker time-to-benefit.
ERP system cost should be viewed in the context of lifecycle cost or total cost of ownership (TCO). Consider the up-front cost for hardware, software and implementation plus operations, support and maintenance cost for a reasonable span of time like (at least 5 to 7 years). Most ERP system providers charge an annual maintenance fee in the range of 18-20% of the purchase price—and it is well worth the cost. A maintenance subscription will insure that you have continuous (phone and web-based) support, “bug-fix” services, as well as system updates and enhancements as the supplier continues to invest in the product and take advantage of new functions and technologies.
SAAS ERP COSTS
Most ERP system suppliers now offer a Software-as-a-Service (SaaS) deployment option for their systems (and some suppliers are SaaS-only). SaaS is a monthly “subscription” pricing paradigm. There is no up-front software license cost and no hardware or operating system cost (the system is hosted in the cloud) but monthly or annual costs will be higher than the maintenance fee with normal licensing. Again, compare costs on a TCO basis over a reasonable timeframe to understand your total expense.