ERP is a complex term which, basically, stands for a software system created for integration and unification core business processes of any given company. ERP system cost depends on modules included, implementation difficulty, and further maintenance.
According to its name, it seems that Enterprise Resource Planning is suitable for large corporations only. This is only partially true because all businesses which consist of several departments can benefit from deploying an ERP app. In this case, the key thing you should consider is the price of the chosen product. Obviously, if it’s lower than the expecting return on investment, it’s time to install software. However, evaluating and estimating are quite difficult tasks, so be sure that you are aware of them.
We have prepared this guide for all readers interested in ERP potential profitability or, precisely, ROI. If you ponder over implementing such software, move through the next sections. Further, we will describe the essence of ERP, its strengths and weaknesses, factors which influence the final cost, and various examples of apps for different industries.
The Global Idea and Average Cost of ERP System
While entrepreneurs sometimes consider ERP as the marketing strategy, further we will talk about software-related definitions only. The most important thing you should remember is that ERP applications focus on connecting various branches or departments in the single transparent system. Using this software, skilled managers can automate conventional tasks, get rid of double-entries and human errors, and facilitate data access greatly.
The majority of modern ERP apps feature a modular scheme. Means, programs are like building kits with various independent bricks which you (or developers) can add or remove freely. There are modules for accounting teams, HR departments, supply chain managers, production or inventory staff, customer relations etc. Knowing your demands and choosing appropriate features is the best way to cut costs and get good ERP.
It should be easier to realize huge price differences with knowledge of ERP types:
- By model: out-of-the-box (with predefined modules) and custom.
- By size: for small, middle, and large businesses.
- By deployment: stand-alone (hosted by users) and SaaS (hosted in the cloud).
- By tech basement: proprietary and open source (customizable).
When it comes to the average cost of ERP system, things become more complex. To begin with, apps divide into two categories: with regular fees and with a one-time payment. The products of the first type are usually hosted and supported by developers while customers don’t have wide access to modifications. Here, prices start from about $10 per month per user and rise up to $200 (look at distribution revealed by Quora and Capterra users).
One-time payments are comprehensive because they include all possible costs like software, hardware, updates, customer support etc. Mostly, they come as bespoke solutions with a high level of customization. The catch is these prices depend on enterprises’ purposes highly, so amounts vary from several thousand to several million dollars. With custom ERP, you can choose integrated functions and avoid unnecessary expenses.
ERP Features, Benefits, and Pitfalls
As you already know about the essence or ERP and different pricing plans, it’s time to reveal how software can be useful. Read on to find core info about ERP features, advantages for businesses of all sizes, and possible challenges. The first thing is common for most of all contemporary apps because they serve one goal, globally. That’s why major features are similar and you can get them even for the lowest cost of implementing an ERP system:
- Integration. Simply put, ERP connects other corporate applications, so they work together. Employees get quick access to tasks and information thanks to a single database. As a result, processes become more streamlined.
- Automation. ERP takes care of multiple tedious things such as invoices, payroll, and orders, to name a few. It’s logical that software does monotonous tasks while staff focuses on more complicated things.
- Analysis. Combining automation, big data, and even AI, innovative ERP can find repetitive patterns and analyze how successful certain department is or how the market will change further. Hence, you can benefit from BI features more.
- Reports. Finally, ERP software creates informative yet not overloaded reports to present results of the analysis. Custom dashboards, pie charts and graphs, combined statistics – everything is concluded and delivered automatically.
Nevertheless, the other two points (strengths and weaknesses) are pretty disparate for prepackaged ERP and tailored apps, so let’s look at how they differ.
Our first hero is traditional prepackaged products with a limited list of modules and low customization level. They are based on so-called best practices, i.e. strategic approaches and functions widely accepted in a certain industry. For instance, there are best practices for banking sector where ERP apps obligatory include high data protection and errorless money flow management. Similarly, healthcare companies seek great privacy and solid transparency for patients who should feel engaged.
Thus, look at primary benefits you can get from out-of-the-box ERP:
- Time-proven efficiency. Thanks to best practices, you get good tools for basic tasks and processes. They can help in defining the idea of your perfect ERP further.
- Good for traditional businesses. New companies and ones with usual goals (e.g. sell laptops or handle transactions) will be happy with this software.
- Overall simplicity. Sometimes, vendors offer SaaS cloud-based ERP with full support. These apps are more expensive but they are simple in use.
Despite the pros, these products have some significant problems which lead to huge total cost of ownership ERP system. To start with, they are poorly modifiable, so you can’t add unusual modules or remove ones you don’t need. Thus, prepackaged solutions neither suit small companies (as they will have to pay more for unnecessary functions) nor are good for large corporations (because they will feel limited in set boundaries). Additionally, you may require in-house IT gang to manage the system if the SaaS option isn’t available.
Unlike the previous type, tailor-made ERP products are extremely flexible. They don’t have any strict structures because developers create unique modules and combine them for each partner separately. Such software suits all possible businesses regardless of their sizes as vendors can modify the platform according to your needs.
Thus, features of tailored ERP are clear:
- Good for all. It doesn’t matter if you sell coffee beans or organize sports events, bespoke ERP solutions will fit your needs 100%.
- Perfect ROI. In the long run, the software will bring more profits because it’s created in accordance with current business goals.
- Familiar business flows. During development and deployment, employees will be able to continue working. As well, they will get quality training from vendors.
- No confusions between branches. Tailor-made ERP support removable modules. With them, managers can hide redundant features from their departments to simplify the workflow. Surely, modules will remain in the global system.
- Constant updating and support. Most of all top-rated custom developers offer lifelong maintenance. They can add more features at any time to meet new goals.
While bespoke solutions are generally much more desirable than prepackaged ones, they also have one flaw: price. Compared to the SAP ERP system cost or cost of Oracle ERP system, custom apps don’t have upper price limits literally. That’s why it’s extremely important to define core processes and goals to avoid overloading the final ERP product and cutting costs. For this, we have prepared the next sections.
TCO or Total Cost of Ownership ERP System
Well, it’s time to review prices and costs in details. First and foremost, remember the difference between the price and the total cost of ownership (TCO). When the first term stands for basic payment for the product or service, the second one includes more points to consider. Simpler, TCO covers both the first price of software and further costs including operating and personnel ones.
The total cost of ownership ERP system can be divided into seven major parts:
- Implementation price: designing and installing software, setting workflows, and so on. To cut down expenses here, try testing MVP before purchasing the final ERP.
- Customization price: extra costs for out-of-the-box products are already included in the previous price if you cooperate with teams who create ERP from scratch.
- Training price: as software is complex, you have to teach staff how to use it. Here are also hidden costs of missing profits as workers spend less time on direct tasks.
- Flow evolution price: change management include great expenses because companies reshape various business processes in accordance with ERP features.
- Upgrades price: regular updates are crucial to meet the constantly changing market conditions. Upgrades come with more process redesigning costs, as well.
- Maintenance price: to be sure that everything works fine, you will need a skilled IT team to control hardware and software.
- Support price: when maintenance stands for tech, support specialists should help your workers deal with issues with new tasks.
Globally, the implementation process partially features all of the mentioned points. Let’s define how much does an ERP system cost when it comes to additional prices!
Cost of Implementing an ERP System
Similarly to the complex nature of managerial systems, the process of deploying is uneasy, too. For all businesses which are going to order an ERP application, we have prepared a detailed plan which covers such challenges as setting up the change management team, designing complete plan of migration, evaluating direct and hidden costs, launching the project, and supporting it. As you understand, all stages include certain expenses.
If you want to cut them as much as possible, consider cooperating with IT outsourcing partners who launch bespoke solutions. Our team provides cool business reports and develops MVP, so you can check the efficiency and reveal the real market effect of the chosen software before paying for it. As well, we always sign agreements which list all possible expenses to avoid miscommunications. And that’s without hourly rates at all!
So, what about the ERP system cost of each implementation stage? Read on to uncover it.
Build or Find a Dedicated Team
Superheroes that can develop and install software are indispensable. The proper project team is the key to success because it will handle processes evolution issues, data migration questions, and all other possible challenges during the transitional period. Generally, you want to hire in-house or outsourcing professionals:
- Project manager – the leader who oversights everything.
- Analyst – takes care of data checking, import, and validation.
- QA engineer – performs tests of efficiency and performance.
- Consultant – evaluates software to predict potential issues.
Additionally, industry-specific companies are interested in more unique staff. Banks or money processors should look for experienced accountants while salesmen rely on CRM geeks highly. In the case of ordering a prepackaged system, you will need a developer with enough knowledge in your industry or business domain.. The partnership with custom developers facilitates this stage and cuts expenses significantly because such companies already have all the required experts. You should just discuss goals and wishes while outsourcers will help with all steps from initial analysis to QA to upgrades.
Design a Detailed Plan
It’s the best point to reduce the cost of implementing an ERP system. By thinking over the whole implementation process, managers can foresee weak links, reveal core business processes, and draft a budget. Try to split planning into two parts:
- Conclude integration steps: schedule, data migration, staff training, QA and testing, launch activities, analysis, and evaluation.
- Predict disruptions and challenges during each stage: communicational, managerial, hardware, software, human, and so on.
As for budget, we will talk about factors a bit later. Consider the info from ERP Focus with the reference to Softwarethinktank’s analysis. It mentions that 56% of implementations exceed budget (35% of them go over by 0-25%, 15% go over by 26-50%, and 6% go over by 50%+). Not only the initial purchasing price should be considered but extra expenses and losses are important. That’s why the total cost of ownership ERP system must be predicted and included in the plan.
Migrate Essential Data
When the planning is over, it’s time to start the reshaping process. Data migration is the basis on which further stages rely, so pay attention to it. With experienced developers, QA engineers, and proper plans, you will be able to import data without issues so the next steps will be painless, too. As for this point, application analyst is the most valuable person as he or she is responsible for the whole migration. Precisely, the expert has to handle:
- Cleansing and validation.
- Databases launch.
- Processing legacy packages.
- Moving data to new storage.
- Testing legacy info.
- Testing new info.
At the same time with tech activities, you can start introducing new software to employees. So far as people are the most valuable resource, be sure to train them well so you will be able to get the estimated ROI. Otherwise, poorly-informed staff will ruin even the best app and increase the average cost of ERP system greatly by productivity losses.
Workers can learn about new applications in-person or via e-courses. Both approaches have pros and cons but, generally, e-learning is better for large corporations while in-person training works well for SMBs. Regardless of the type, efficient teaching comes with the next features:
- Role-based. With it, employees will learn only things related to their departments.
- Superusers. The most tech-oriented folks can then teach less experienced users.
- Feedback. It’s essential to listen to your staff and understand its needs.
During the development of custom ERP, we handle training, as well. Together with managers, we can introduce several levels of engagement from free snacks during in-person courses to salary bonuses and extra paid weekends. In terms of trainer-user interactions, custom-based teams are more flexible than vendors of ready-made apps as the former can adapt to different clients’ ideas.
Run the System
Finally, it’s it! The day (or days) of launch is vital and the success is impossible without proper preparations. Before and during the go-live stage, be ready to handle these things:
- Test systems.
- Schedule staff tasks.
- Evaluate each process.
- Foresee downtimes and emergency cases.
- Check network stability.
- Backup data.
And more, and more. Don’t launch new applications before you are sure that core data will be safe and core processes will survive the transitional period. Potential losses during this stage are really big, so we recommend double-checking the chosen software. Let’s say, you can see that ERP system by IBM cost is high but can you be sure that it’s ideally reliable? As big vendors sell universal solutions, companies with unusual tasks can benefit more from customized apps.
Continue Supporting and Evaluating
Similarly to surgery where doctors care about patients a long time after the operation itself, you should maintain the launched system. Regular performance reports help a lot as they show productivity/revenue growth or decrease. ROI stats, numbers of human errors, client satisfaction – these features are necessary, too.
If you don’t have a dedicated in-house department, it will be a good idea to consult with developers. We offer our clients the lifelong support including interaction with employees and maintenance of hardware/software. Additionally, we can introduce new modules and updates on demand so you can be sure that the company will meet the market’s conditions.
ERP System Cost Comparison
Finally, let’s look at some of the top-rated providers of prepackaged solutions and compare them with custom offers. Right now, the market is filled with various providers but, according to Apps Run the World, there are two leaders: SAP and Oracle. In 2017-2018, the first team had a 6.4% YoY growth while the second one faced a 3.4% rise. Also, we will talk about software from IBM because of the reputation and time-proven quality of this company.
SAP ERP System Cost
The biggest player on the market of ready-made ERP systems, SAP has several products and pricing plans. Its BusinessByDesign SaaS cloud-based app starts from $150 per user per month when more advanced S/4HANA Cloud features at least $220. User-hosted ERP without SaaS options cost from $25K to $2M. However, these prices include only direct costs.
Cost of Oracle ERP System
Oracle features various packages including cloud-based, stand-alone, and even partially customizable systems. For cloud services, prices start from $80 per user per month and cap at $175 when more complex apps have one-time payments from $15K to $400K. A lot of Oracle systems are quote-based, as well.
ERP System by IBM Cost
The most famous ERP software by IBM is called OpenPro. This application can be deployed in the cloud (then, costs are at least $44 per user per month) or launched in your company directly (for $1000 one-time payment per user). Additional modules of OpenPro also cost $1000 per each function.
Unlike mentioned companies, we don’t have any predefined set of modules or ready-made ERP programs. Instead, we cooperate with each client as technology partners to deliver a customized solution which will meet all demands.
You can check some of our finished projects – ERP apps for HR/insurance teams:
- InsuBiz. The wholesome tool for obtaining, editing, and evaluating insurance sets without redundant communication with agents. Good for individuals and entities.
- BenefitNet. The powerful automated platform for insurance agents and employers to check staff insurance benefits and streamline business processes.
As for prices, we don’t have hourly rates as other freelance outsourcers. After consultations, you will get a solid plan with schedule and costs of each stage, potential losses, and extra features. You are free to choose the best ERP system cost. With us, you pay for quality and on-time delivery, so we care about the final result equally.
Questions & Answers
This section is traditional as it reveals the most common points of interest. Navigate through it to refresh key parts of the guide.
What ERP Means Basically?
It means Enterprise Resource Planning and includes specific software which connects branches of the company and unifies core data.
How Much Does an ERP System Cost?
Cloud applications start from $10 per user/month while stand-alone solutions come with one-time price from several thousands of dollars. However, you also should remember about extra costs related to operating issues, staff training, and revenue losses during the switch from old apps. Thus, TCO can reach several million.
Which Software Is Better?
For traditional companies without unique business tasks, out-of-the-box packages will be good because they utilize best practices. For small or large enterprises with more specific needs, we suggest ordering custom ERP apps. They are good because you can choose modules and cut extra expenses thanks to proper analysis.
What Does an ERP System Cost for Custom Projects?
If you have decided to get a custom solution, then be ready to discuss everything. Such software features quote-based prices because each client has own requirements. Costs vary greatly for different companies.
How to Choose the Best Vendor?
To find the perfect development team, follow some basic tips:
- Review previous projects. Check industries and technologies used.
- Read about features. Ideally, developers should offer all the modules you need.
- Ask for a consultation. So, you will be able to talk personally.
- Compare offers. Contact various providers to find the best one.
So far as ERP solutions are usually complex and expensive, it’s crucial to deploy only ones which meet your business needs perfectly. For this, you can choose a company which develops bespoke systems and adapt them to your wishes regularly thanks to Agile methodology. To cut costs, custom-oriented teams create MVP firstly so you can check results before launching the final product. Surely, you must know the core processes and tasks of your company to get the best ERP (if you aren’t sure about them, don’t worry, we also can help with analysis).