ERP Software Systems for Small to Medium Sized Businesses
By now, you’ve pored over plenty of materials and feel ready to pull the trigger on a new ERP software platform.
But before you do, you’ll need to turn a critical eye to your options while keeping each platform’s costs in mind. What does an ERP for a small business cost? Below, we’ll review the costs associated with an ERP project to help you understand what you’re in for.
The Cost of ERP Software for Small Business
Every small business eventually reaches a point where an enterprise resource planning (ERP) system becomes a necessity. Research by Aberdeen found that 96% of best-in-class growing businesses had implemented an ERP system in their organizations. And it’s not hard to see why.
As a business management platform, the right ERP can bring a wealth of benefits to your small business planning, including:
- Lower inventory costs through stock visibility and inventory tracking
- Real-time reporting and analytics tools to support long-term planning
- Better business security with dedicated protection for on-premise/cloud servers
- Centralized customer information that makes it easy to pull up histories and resolve issues
- Faster invoicing and administrative work through process automation
There are plenty of ways to apply your ERP for business success, depending on your current processes. In a 2018 survey of senior IT professionals, 53% agreed that ERPs were a priority area of investment for their companies.
But not just any ERP will do the job. Companies must approach the planning process with care, as a poorly-chosen ERP can turn a simple implementation into a serious hassle.
Small businesses need to get one step ahead, so that they can implement ERP the right way on the first go. In particular, it pays to understand the different ERP pricing models at your disposal, licensing options you can choose from, and implementation costs you may encounter.
There’s simply no other way to justify the costs for your business processes.
ERP Pricing Models
Broadly, ERP pricing falls into one of two categories:
- Perpetual Licensing: An ongoing license to host the ERP platform on-premise, paid for with a one-time licensing fee. On average, expect to pay between $1,500 – $2,500 per concurrent user.
- Subscription Plan: A software-as-a-service (SaaS) pricing model, the ERP platform is hosted on the vendor’s system and accessed through a user portal—in essence, allowing customers to “buy in” to a solution. Payments will be made monthly, quarterly, or annually, granting users access to functions based on their pricing subscription tier. On this plan, you can pay about $250 per month per user on average.
Most ERP vendors – Oracle, IFS, Microsoft, SAP et al. – offer a choice between these two licensing models, each of which comes with its own features and costs. Fundamentally, the question comes down to whether you’d rather buy or rent, but there’s a bit more nuance to the decision that’s worth exploring.
A perpetual license is your “full purchase” option. You won’t be paying monthly or annual fees to access the system, and all ERP assets are hosted in-house. Typically, pricing for perpetual licenses is based on the scale of your implementation, the number of users needed, and additional customizations or modules you want.
Key Benefits of Perpetual Licensing
Perpetual licensing is for those who know it’s better to own than to rent. When you host ERP solutions in-house, you get complete control over your platform, its features, and the way it’s run.
And when you run the show, you’re free to build in industry-specific customizations, eCommerce functionality, new APIs, or other tools you need to manage your resources.
Plus, depending on your implementation, it can be more cost-effective for your platform’s total cost of ownership (TCO) to purchase everything rather than pay monthly subscription fees.
As a SaaS pricing model, subscription plans require you to pay an ongoing fee (monthly or annual) for the privilege of system access. All ERP assets are hosted through the vendor or one of the vendor’s affiliates, meaning that you won’t be responsible for setting up or running your own servers. Costs here are usually tiered, with more advanced support and premium services costing more.
Key Benefits of Subscription Plans
Subscription plans are for those who value simplicity and ease of access in the ERP implementation.
Since ERP assets are hosted by the vendor, you aren’t responsible for purchasing hardware or servers for hosting. Everything is done for you. And since everything is cloud-based, you’ll find that the implementation goes faster with lower up-front costs than you’d find from a full on-premise build.
It’s a great way to access cloud ERP features without committing to the process of perpetual licensing.
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Platform Implementation Costs
Next, we have costs related to the implementation itself. These costs generally apply to perpetual licensing arrangements where a platform needs to be installed, as subscription-based services are hosted off-premise in the cloud.
Implementation costs tend to be highly variable and will depend on what functionality you include, but they’re necessary if you want to unlock the full spectrum of features offered by your ERP.
This is important to consider as ERP projects often get bogged down by poorly planned implementations. Certain features may be omitted from the service bundle, or you may “over-buy” features that your company doesn’t really need.
It’s a big project, and you need to approach the process with care. Better resource planning, data tracking, and administrative automation all begin with a review of ERP platform costs.
On-Premise Hardware Costs
You’ll likely have to bring in new IT infrastructure to supplement your on-premise ERP, which could cost tens of thousands of dollars.
Evaluate your current hardware assets against the recommendations of your vendor. You’ll be responsible for standing up your servers, managing hosting, updates, and platform maintenance – so be prepared if you haven’t run an ERP system at this scale before. This aspect represents both an implementation and ongoing cost for on-premise ERP solutions.
Data migration is a crucial part of your re-platforming, but it’s one that’s often overlooked in the implementation process. After all, choosing a new system is exciting.
You get to pick out a new business intelligence system that will open the doors to new technologies and opportunities. But data migration is more about the nuts and bolts of the implementation. It’s a necessary process of moving data from one silo to another. And unfortunately, companies tend to underestimate the resources that this process will take.
Suffice it to say, companies with substantial amounts of data to transfer will end up paying more, so be prepared to discuss this issue with your vendor partner.
Additional Modules and Customizations
You may encounter significant costs for additional modules and features that aren’t included in the platform starting price.
The starting price represents what you’ll pay for basic functions like inventory tracking or customer relationship management, but you’ll have the option to build out your system with add-ons that add functionality for accounting, human resource planning, in-depth reporting, and so on.
This issue is more for perpetual license users since on-premise solutions have the most potential for custom integrations. Subscription-based platforms, on the other hand, tend to be more limited in terms of integrations, as you’re working within a system that grants you access to features based on your subscription tier. With a perpetual license, you’re free to set up your hardware and deploy customizations as you see fit.
The number of users in your system is a key cost point. Many ERP systems base costs on a per-user framework, with costs scaling up based on how many users will need system access at once and what level of access those users will enjoy.
Ongoing ERP Costs
Ongoing operational costs will form another big chunk of ERP expenditures. Again, these costs will vary depending on whether you choose a perpetual or subscription-based license, but they’re a necessary part of your ERP investment either way.
Ongoing costs will make up the bulk of your ERP expenditures over your platform’s post-launch lifecycle, so it’s important to plan ahead. The last thing you want to worry about after a long implementation cycle is paying into a system you can’t afford. Plan out the following variables to ensure that your ERP project goes off without a hitch.
For on-premise deployments, you’ll need to hire dedicated IT support staff to monitor your system and address any challenges that come your way.
These challenges are inevitable in any ERP project, so be aware of how your personnel costs may change. A little extra investment here can give you confidence that your system will run efficiently at all times, no matter what issues may pop up.
Subscription-based users pay a premium to not have to worry about technical issues like these, as any technical problems are managed by the service provider.
While your ERP vendor may offer basic system training with the purchase of your system, most companies are on their own when it comes to bringing everyone in the organization up to speed.
Vendors typically charge for more advanced usage training in their systems, so if this is a priority for your company, make sure you go with an integrator who offers this service.
Don’t neglect this aspect nor underestimate its importance to your implementation. Even for smaller companies, training a team on a new system will take a lot of time.
Make it easier by appointing dedicated project managers to oversee the onboarding process and supplement in-person education with online resources provided by your ERP vendor.
Customer support is another function that usually comes with added costs. This service helps your company manage its ERP and deal with any technical issues that may arise, and is most useful in on-premise perpetual license arrangements.
These functions may include email support, access to knowledge databases, technical troubleshooting, and other features that help your team run the ERP efficiently.
You’ll find that many vendors offer basic customer service within their pricing models, but most companies offer premium service packages that provide more advanced help, such as remote helpdesk support, for an additional fee.
Support and maintenance costs can take up on average between 15-20% of your software budget, so evaluate your budget and the skills of your IT team before making an investment.
Understand the Role of an ERP for Your Small Business Costs
ERP implementations are big projects, and even small businesses will have plenty of details to cover during the planning process. And as we’ve discussed, these crucial details are what can make or break your ERP implementation.
Get ahead of any issues with a thorough planning process that lines everything out from end to end and guarantees that your team is on the same page.
Make a list of your resources and the projected cost for each of your shortlisted ERP solutions. Will you need real-time reporting features? Do you plan to incorporate accounting and bookkeeping add-ons? Or supply chain management integrations?
You have a lot of options here for building out your business processes, so side-by-side comparisons of your options will offer the best insight into how ERP works – and which one makes the most sense for your company. This will give you the best possible information when searching for an ERP integration partner who can handle the project right the first time.
And if you need help in any aspect of the ERP selection or implementation process, Corning Data is here to help. We have years of experience in small business and enterprise ERP software consulting, and we’d be happy to share our perspective on which ERP system will work best for you.