How much does an ERP system cost businesses?
How much an enterprise resource planning (ERP) system will cost depends on your business’ size, complexity and goals for the software. The more modules, users, customisations and integrations you require, the higher the cost.
In this guide, you'll learn about the two most common ERP pricing models, the costs you might overlook and a formula for calculating ROI.
ERP pricing models
There are two common pricing modes for ERP software: perpetual and subscription licensing.
Perpetual licensing
Perpetual licensing means you pay a one-off fee to buy and implement the software. It's most commonly used by on-premise ERP software. Many vendors will also offer maintenance, support and updates for an annual fee.
Subscription licensing
Subscription licensing is commonly used by modern cloud-based ERP software. You pay a monthly or yearly fee to use the software, with maintenance, updates and a level of support also included.
Factors that influence ERP pricing
The factors that influence ERP pricing include the number of users you expect to have, the modules, customisation and integration you need and the way each vendor prices their software.
Number of users
The number of users accessing your ERP will affect the pricing. Even if your vendor doesn't charge per user, the more people using the software, the more it will cost overall. This is because you'll need to factor employee training and software maintenance costs into your total cost of ownership.
Modules being used
The ERP modules used by your organisation will impact the software cost. This is because most ERP systems start with a base package, which always includes a financial module. You'll typically need to pay more for any additional modules to fit your business requirements.
Cost
Costs can vary a lot from one vendor to another. Start by finding software that looks like it will closely fit your needs, then compare the fees and what's included.
Customisation and integrations
Customisation and integrations aren't always necessary – many organisations thrive using an off-the-shelf ERP that’s configurable to their needs. If you do need to tweak how your ERP works or integrate additional specialist software, this will cost extra.
While modern open ERPs simplify integrations with app marketplaces, you may still need to pay a developer to get exactly what you want. Customisation can be expensive and may add to your ongoing maintenance costs, so look for an ERP system that fits well with your business right out of the box.
Customer support
Customer support for your ERP can easily be overlooked – how much support is included in your base package? If it isn't enough to keep your system working well, you should factor in additional spending.
Software maintenance and upgrades
Software maintenance and upgrades keep your ERP system delivering value, up-to-date with technological advances and protected against emerging cyberattacks. Some vendors will charge extra for this service, impacting your overall cost. With cloud software, these services are typically included in the subscription fee.
Average cost of ERP
As a guide, small to medium-sized businesses can expect to pay upward from $30,000, and large enterprises can expect to pay between $1 million to $10 million.
Non-monetary costs of ERP
Non-monetary costs of ERP include the opportunity costs of lost time and lowered productivity during implementation. Long term, good ERP systems will more than makeup for these costs through the efficiency gains that they generate, but it's a good idea to factor them into your opportunity cost calculations. Here's what to consider:
Time
To roughly estimate the time it will take to implement your system, divide the cost of the ERP by 100. If your ERP system costs $100,000, the implementation time would be approximately 1000 hours.
You may also need to tweak processes, manage integrations and customisations, train staff and troubleshoot issues after launch.
Productivity
Productivity can also dip as your staff, customers and suppliers get up to speed with the new system and new ways of working. It may initially take everyone longer to complete tasks, but you'll generally see a significant efficiency uplift as people get more familiar with the new system.
Forecasting ERP system ROI
To forecast ERP system return on investment (ROI), compare the expected total cost of ownership against the expected direct and indirect benefits over a set period. Here’s a simple formula to calculate ROI:
ERP Return on Investment = (ERP Returns / ERP Cost) x 100
However, calculating ROI for an ERP system can be complex because the benefits and costs can be intangible or indirect.
For example, you may need to attribute a monetary value to benefits, such as:
Reduced labour costs
Reduced labour costs can save your business thousands. To include them in your ROI, calculate what you'll save on salary or wages with the efficiency gains you expect from the cloud ERP. You can realise these gains by downsizing your staff or growing without adding to your team.
Improved efficiency in business processes
Improved efficiency in business processes can positively impact your productivity and profit margins. To include it in the ROI, calculate what the expected increase in this metric could mean for your business over the set period.
Improved customer service
Improved customer service can minimise customer churn while making it easier to market your business, grow each account and ask for referrals.
Better legal and regulatory compliance
Better legal and regulatory compliance can help you reduce legal fees while avoiding legal proceedings and fines.
Improved organisational data management
Improved organisational data management can deliver immediate savings on storing and managing data. Longer-term, better, faster access to data can also help you identify ways to save while uncovering unnecessary expenses.
In addition to ROI, consider calculating the payback period, which is the time it takes for the ERP system to pay for itself through the benefits that it generates.
ERP price FAQs
What are some of the hidden costs of ERP?
Some of the hidden costs of ERP include training your team, lost productivity, customising the system and long-term maintenance. This is why it pays to look for a system renowned for its ease of use and responsive support.
How do you estimate the cost of ERP?
To estimate the direct cost of ERP, you'll need to consider how complex your business is, how many users you'll have and whether you need an on-premise or cloud system. You should also factor in the indirect costs of the implementation, like lost productivity and staff time.
The best way to get an accurate estimate is to find ERP software options that most closely suit your requirements and then ask each vendor for a quote. Vendors should also be able to help you predict the time and staff you'll need to dedicate to the implementation process and how quickly your wider business will be back at full productivity.
Why can ERP implementation be so costly?
ERP implementation can be costly because the software is complex and sophisticated compared to accounting software. The almost endless functionality ensures you can use it across every part of your business.
ERP: priceless benefits
While the business benefits of a modern cloud ERP system will more than cover the initial outlay and ongoing costs, it's still important to understand what you'll pay for each ERP option. One system may look less expensive on paper but could require more customisation or a more time-consuming implementation.
A good place to start is by understanding your requirements. This ERP evaluation checklist can help you clarify your mission-critical function, tech and storage needs, calculate ROI and more. MYOB's enterprise software experts are always happy to help – get in touch.
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