ERP implementation costs are certainly one of the most concerning factors of any ERP project. They can spiral out of control, costing your company hundreds of thousands if not millions of dollars when they do.
Thats why you should educate and arm yourself with knowledge before embarking on any ERP project, which is why in this blog post we're going to deep dive on ERP implementation costs, what they are, how to control them, but also how to ensure your ERP project doesn't suffer as a consequence.
ERP Implementation Costs
ERP Software Licenses
Whether you choose Netsuite, Microsoft Dynamics, Acumatica, SAP Business One or a larger ERP systems such as IFS, QAD or S/4 HANA, you're going to have to pay for ERP software licenses or a subscription.
However, this may not neccesarily be the case if you opt for an open source ERP system such as ERPNext or Odoo.
Assuming you choose a mainstream ERP software, you can expect to pay either ERP subscription costs on an op ex (operational expenditure) basis, i.e. a monthly or annual flat cost, or on a cap ex (capital expenditure) basis, i.e. you buy the rights to use the software outright, then a support fee to get updates.
These two models typically align with a Cloud ERP or On-Premise ERP model, with Cloud ERP software having an op ex model and vice versa.
How much do ERP software licenses cost?
As with most things, the more you buy the cheaper the unit cost is. The same industries of scale apply to the cost of ERP software. But as a rule of thumb, a fully fledged 'advanced' or 'power' ERP user (the kind used by your finance or supply chain teams) will cost somewhere between $100-200 USD per month on a Cloud ERP subscription assuming you're a small business. A larger business may get a 30-50% discount on that cost.
Similiarly, if you opt for a cheaper, Tier 2 or Tier 3 ERP software, your costs may be lower, whereas a Tier 1 ERP user is likely to be more expensive.
Avoid Expensive ERP software mistakes
When purchasing ERP software, it is key to get a good understanding of the pricing model and what your ERP licensing entitles you to use. Not all ERP licensing models are equal.
For example. some ERP software can be licensed simply on a user basis. Other ERP software is licensed on a user and functionality basis, i.e. you have to buy additional modules such as professional services automation. Some ERP software is licensed based on users, functionality AND usage too. For example, you may be billed for the amount of revenue which passes through your system, or based on the quantity of documents.
What's for sure is that every ERP software has a unique approach to ERP licensing and if youw want to avoid any nasty mistakes, make sure you do your thorough analysis and due diligence.
ERP Implementation Providers
In 90%+ of ERP implementations, you'll want to hire an external ERP implementation company that specialises in implementing your chosen ERP software and perhaps also specialises in your given industry or is geographically close to your sites.
Whilst hiring an external ERP implementation company can bear a cost, it is considering almost essential in order to de-risk your ERP implementation.
The cost of ERP implementation providers will vary based on the factors of your ERP implementation including scope, integrations and more, but fundamentally upon the cost of their consultants.
ERP consultant costs can be eye wateringly expensive and some consultants can cost upwards of $2000 per day for consultants specialized in niche ERP products, modules and areas of expertise. On the other hand, ERP implementation providers are increasingly globalized and leverage cheaper offshore resources which can be a fraction of the price of local ERP consultants.
The trick to managing your ERP implementation cost without compromising quality, is to get the right mixture of local ERP consultants for key elements of the ERP implementation and offshore resources for routine build work.
Data Migration & Testing Tools
As we explored above, many of the tasks involved in an ERP implementation project are low value and repetitive. This can include tasks such as ERP data migration and testing. Increasingly in larger ERP projects, organizations are using these tools in order to reduce the cost, time and risk of their ERP implementation project.
The cost of these tools can vary, but the added assurances, speed and accuracy they provide is an additional value driver to consider during your ERP migration.
ERP Project Managers
Its recommended to have an ERP project manager to lead both your ERP evaluation and ERP implementation process. Your ERP project manager can be a full time dedicated role or can be a part time or additional role for one of your existing IT project managers or team members.
Bringing in an ERP project manager externally on a full time basis can cost anywhere from $60,000 per annum and upwards but they are typically available on a contract basis.
ERP Project Team
As well as an ERP project manager, you will need the help of a wider ERP project team. This team will vary in size and roles based on the size of your organization and the complexity of your project, but can include business analysts and key users from across your business depending on the scope of your ERP transformation project.
This does of course bear a cost - in that you may need to consider additional compensation to reward and incentivise the members of the team to participate in what can be a stressful process.
Additionally, you should consider how they will carry on with their day to day duties and this may require backfilling or recruiting additional help to ensure that business runs smoothly.
Which factors impact ERP Implementation Costs?
ERP Project Scope
The largest factor which dictates your ERP implementation costs is the scope of your ERP project. ERP project scope can include:
ERP Modules
It's safe to say that is generally easier, faster and cheaper to implement fewer ERP modules than it is to implement multiple. For example, implementing just financial management, accounting and procurement is far cheaper than implementing an end to end ERP system covering sales, accounting, procurement, supply chain and project management.
That said, implementing fewer ERP modules may leave you requiring more integration which can be even more expensive.
Number of Geographies & Localizations
The more geographies and accounting jurisdictions your business operates in, the more you probably need to implement an ERP in the first place, but the bigger your ERP project scope will be. You will need to configure multiple accounting localizations and potentially different processes to accomodate different ways of working at each site level, assuming you aren't completely standardizing your business processes.
Integration
Integrations with other systems can be a major driver of ERP implementation costs and they need to be controlled to ensure costs remain sensible. It's therefore crucial to thoroughly review every proposed integration with your ERP system before committing to the integration & implementation cost.
For example, connecting your ERP with your CRM platform to pass customer sales order data may be a crucial, efficient route to take, however integrating your ERP with your building management system may not.
