ERP

How much does it cost to implement ERP? ERP Implementation Cost Guide

In this article, we'll explore the different budget elements of an Enterprise Resource Planning project, plus give you ...


In this article, we'll explore the different budget elements of an Enterprise Resource Planning project, plus give you some tips and hints as to how you should accurately put together a cost budget for your programme.

We'll help you answer questions such as:

How much does ERP cost to implement?

What is the cost of an ERP Project?

How much does Cloud ERP cost?

Although this guide provides a high level understanding of the costs that go into implementing and running an ERP system, if you would like to quickly understand the costs of different ERP solutions such as SAP, Microsoft, Odoo, Netsuite and many other leading vendors, book a call with one of our team below:

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Let's get started:

1. ERP Licensing Costs

2. ERP Implementation Costs

3. Internal Costs

ERP Licensing Costs:

Software licensing can be a topic that causes a lot of confusion when considering the cost of ERP. Every vendor has their own price list, their unique way of licensing, contract terms and their own fair share of hidden costs. This can make it very difficult for you to accurately budget the initial software licensing requirements but also to forecast your ERP costs into the future. 

Cloud ERP (SaaS) Vs.  On-Premise (Perpetual) Costs

The first thing you need to figure out is whether your ERP license costs will be paid on a subscription or perpetual licensing model.

We explain the differences in more detail here. But basically, Cloud ERP tends to be an all in one annual subscription cost (opex) including licensing, hosting and product support. On the other hand, On-Premise software is an up front (capex) cost allowing you to purchase the rights to use the software vendors IP, however with a smaller maintenance cost paid to the vendor annually in order to receive product updates and support.

ERP User Access Licensing Costs

Typically, all ERP software vendors charge at a minimum for end user access into the system in some way. Some vendors will have different user types depending on the level of functionality that end user has access to and every user will need to have their own user license in order to access the system. This is known as a named user license in the software industry. 

Named User Licensing

Named user licensing for Cloud ERP software generally cost between $20-250 per user per month depending on the user type.

For example, if a company needs 20 users to access their ERP tool, perhaps 5 are accountants (therefore heavy duty users of the system) and perhaps the other 15 are only entering timesheets or making purchasing requisitions. In this example, on a name user basis, many ERP vendors would provide each user it's own license, but they would be priced according to that users level of responsibility and usage of the ERP system.

Concurrent Licensing

On the other hand, some software vendors provide concurrent user licenses. This model allows for a set number of users to access the ERP system at the same time. Each user would not have his own license, but the users would be limited overall by the amount of users able to access the system at any one time.

Concurrent user licensing for Cloud ERP software is less common nowadays, however costs can range from $50-500 per user per month.

For example, you might have 200 employees all requiring access to the system, but only 50 concurrent licenses. In this example, only 50 users would be able to access the system at the same time. 

There are pros and cons to each model of course. Typically named user licenses are cheaper than a concurrent license, but a concurrent license may provide more value if you operate in a shift driven business such as manufacturing where employees are working around the clock but in several shifts.

ERP Engine Licensing Costs

Whereas an ERP user license provides access for your employees into the system, ERP engine licensing, also known as advanced functionality or additional modules, provides additional functionality than the core enterprise resource planning system provides. 

For example, some ERP solutions offer core functionality across the main lines of business such as financial management, inventory or stock management, project management, procurement and so on. This functionality provides the basic application functionality required to operate those functions, such as a general ledger, accounts payable, accounts receivable and a record of stock levels etcetera. 

But many organizations require additional functionality in these areas. For example, perhaps you require financial consolidation for your multiple legal entities, or you'd like invoice scanning capabilities to streamline your AP team.

Whilst this may be included in the core ERP user licensing, many software vendors charge an additional fee in order to be able to use those capabilities. Typically it is charged for on a consumption basis. For example, financial consolidation licenses may be charged based on the amount of legal entities or transactions you need to consolidate, whereas optical character recognition (OCR) invoice scanning may be charged based upon the amount of documents you need to process in a specific period of time.

Too often, we find the companies embarking on an ERP project see great demonstrations from ERP application vendors, showing them amazing features they can't wait to implement. But when the dust settles and the implementation project begins, they quickly realise that additional licenses are required to meet the full capabilities of the ERP software they were shown during the procurement cycle.

ERP Hosting & Infrastructure Costs

erp cost breakdown implementation price implement

If you purchased a Cloud enterprise resource planning application, hosting is bundled in right? 

Sometimes, yes. But sometimes there can be hidden costs here too.

Depending on the type of Cloud ERP you've purchased - SaaS, private Cloud, private hosted ERP, you may need to pay additional fees in the event you need more memory, additional environments or disaster recovery.

On the other hand, for an On-Premise ERP system, you will definitely need to take into account the costs for hosting in your own infrastructure or on a Hyperscaler or other  datacenter provider such as Amazon Web Services (AWS), Microsoft Azure or Google Cloud Platform (GCP).

ERP Support Costs

Some ERP software vendors include product support included within the cost of your Cloud ERP subscription, or in the On-Premise maintenance cost, but not always. Others charge an additional 10-20%+ fee for the privilege of speaking to their ERP support team.

Typically this service provides product level or third line support. That is, if there is something fundamentally wrong with the ERP application, you can consult with a product specialist.  

On top of this, you also need to consider end user support. Especially during the first 3-6 months after go-live, having this in place is critical whilst your end users are acclimatizing to the new ERP software. They will often have queries or issues caused by a lack of experience with the system, rather than a fault within the application itself and ERP vendors will typically not provide support in this area.

Typically, organizations will outsource some support to an external provider or the systems integrator or implementation partner who implemented the ERP product in the first place. Bear in mind that typically, the more you customize an ERP solution, the more expensive and difficult it becomes to support.

Enterprise Resource Planning (ERP) Software Implementation Costs

ERP implementation costs are by far the most unpredictable variable in the lifecycle of an ERP system. Every implementation is different because every company has different needs and every ERP solution approaches implementation in a slightly different way. Some organisations implement only the financial management elements of an ERP solution such as general ledger, AP & AR. Others opt for a larger implementation including professional services automation, asset management and more. 

Generally speaking, the cost will depend on the amount of man days required to implement your chosen scope and the day rate of the consultants required. The amount of man days required is completely down to your needs, whereas the day rate for consultants is a little more predictable.

You will also need multiple consultants throughout the project which will overlay and intersect at different points such as a project manager and specific functional consultants for each area such as finance or supply chain.

Onshore Vs. Offshore ERP Consultants

For onshore resources based in the United States, ERP functional consultants and project managers can cost anywhere from $750-$2000+ per day. The cost very much depends on the availability and quantity of the specific skills you require on the market. 

On the other hand, offshore resources can be dramatically cheaper, with a day rate at 50% or less than their American counterparts. 

Often, your chosen implementation partner or systems integrator will offer a blend of both onshore and offshore resources to optimise the cost but also provide you local, onsite support both during and after implementation.

ERP Project Internal Costs

ERP projects require the dedication and time of your own internal employees in order to be successful. 

As a minimum, you will need to dedicate at least 50% of the time of one of your key employees during the implementation process. However, in most cases the burden will be greater and you'll need to take away multiple employees from their day jobs.

Depending on how many people you need to take away from their day jobs, the potential cost of disruption may be higher as they can drop the ball on day to day activities.

You may also need to hire an internal project manager to be the liaison between your ERP software vendor and implementation partner which can cost anywhere from $50,000-$100,000+ per year.

ERP Research

Confused? A little scared? Unsure? 

ERP Research has helped hundreds of businesses to accurately calculate an ERP budget, speak to one of our team today for free to make sure you budget correctly. 

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