To estimate the cost of an ERP system, many factors should be taken into consideration. The size of a company, its specific functionality and customization requirements, and the deployment method are just some of the factors that influence the final cost of ERP software. In this article, you will learn more about the range of expenses that go into the cost of an ERP system and its implementation.
The most important component of ERP software price is licensing fees, which vary widely depending on the product. Some ERP system vendors price their products based on functionality, but this is not true for all ERP software on the market.
Yet, often, the licensing model determines the price. The most popular models used by ERP system vendors are subscription-based pricing and perpetual licenses.
The first plan is especially popular for cloud software and offers companies greater flexibility. In this scenario, payments are usually made monthly or annually and depend on the applications added to the ERP suite, the number of users, and their access to software features. Some vendors also allow enterprises to choose the resources, such as storage space, which is also added to the final price. Under this licensing model, larger companies have to pay more than smaller ones.
Perpetual licenses involve an upfront payment and generally do not make it possible to change the fee, while the full feature set is available and the number of users is not limited.
Note that some ERP software offers a usage-based pricing model. In this case, the price is determined by the actual usage of the resources.
Hardware and Infrastructure
If you opt for an on-premise deployment model, you should be prepared to invest in server and network hardware and equipment, as well as backup systems. You may need a room specifically for your server infrastructure with power backup solutions. You will also most likely need IT specialists to maintain your infrastructure.
Cloud deployment frees companies from these upfront investments, but that does not mean infrastructure usage is offered for free. In this case, the cost of using the cloud infrastructure is already included in the license fees.
As a rule, implementation services are not mandatory, and you can deploy your software without the support of implementation specialists. In this scenario, you may have the opportunity to save money if you have employees with sufficient knowledge of the software you have chosen.
In practice, however, it is rather rare for an organization to have such a specialist. Moreover, it is impossible for this person to have extensive experience with ERP software implementation, unless they specifically specialize in this discipline. For example, XPLUS, a provider of implementation services for Microsoft Dynamics 365 Finance and Supply Chain Management, has been working with the ERP software from Microsoft for over twenty years.
While there is an additional cost associated with using implementation services, it streamlines and accelerates the deployment process, helps companies select the most effective software configuration, and avoid costly mistakes, which reduces implementation costs in the long run.
Note that implementation service providers’ offerings vary widely, which also affects their prices. Comprehensive services can include system setup, configuration, customization, integration with other systems, data migration, user training, and ongoing support. In addition, some implementation specialists require a one-time payment for their services and the software, while others charge separately.
Advanced ERP systems such as Microsoft Dynamics 365 FSCM provide companies not only with standard functionality but also with a range of cutting-edge features, for instance, forecasting capabilities powered by artificial intelligence. However, even with such software, some companies may require customizations to meet their unique business needs.
These customizations will incur additional costs, depending on the complexity and scope of the software changes, the specialists involved, and the deployment method you choose for your software. Customization of cloud ERP systems is usually more expensive than customization of on-premises software because of the higher effort required from developers.
Integration with Other Applications
Unlike customization, integration with other platforms is often a less expensive process in the case of cloud ERP systems, but the amount of work required from developers can vary significantly differ in the case of various products.
For example, the process of integrating Microsoft Dynamics 365 FSCM with the CRM solutions from Microsoft may be cheaper than integrating ERP and CRM systems offered by different developers. Microsoft Dynamics 365 is designed as a comprehensive ERP and CRM suite that allows users to easily remove and add applications. Additional costs are incurred when integrating Microsoft’s ERP system with third-party software.
How to Reduce Costs of an ERP System?
Virtually every medium and large company can benefit from an ERP system regardless of its industry, but not all firms can afford the cost of such software.
If your company cannot afford the high upfront implementation costs, you should opt for a cloud-based system to minimize the associated costs. Sometimes, an on-premise solution may give you a higher ROI in the long run but your company will need a sufficient budget for the initial investment in an extensive infrastructure. As already mentioned, IT specialists are also needed to maintain this infrastructure.
You can opt for a scalable and flexible solution and implement only the most important features at the beginning. Look for a system with modular design that allows you to change the number of applications.
Also, choose a system with a monthly licensing plan to avoid high one-time payments. Make sure you can change the number of users at any time and avoid customization as much as possible.