Breakdown of ERP Implementation Costs
ERP implementation costs can range anywhere from tens of thousands of dollars for small businesses, to hundreds of thousands or even millions for larger enterprises. Of course, ERP systems are investments: for a relatively significant fee now, they will pay off huge dividends in the future.
Nevertheless, companies will want to reduce the price as much as they can for the value they’re receiving. Here’s a breakdown of the costs for ERP systems and some ideas for reducing them:
Selecting your product:
There are some choices to make as you’re selecting your product which will play out in how much it eventually costs.
- Number of modules
ERP software typically comes with different modules for different processes. For example, common modules include accounting, financials, sales, manufacturing, inventory, purchases, and CRM.
The more modules you need, the more it’ll cost, so businesses should add modules wisely. In contrast, a large benefit of ERP comes from connecting the whole business, so this advantage should be kept in mind as well.
- Licensing costs
If you’re purchasing a proprietary software, there are going to be monthly/yearly licensing costs associated with the product. This is usually in the form of # users/mo or # users/year. Therefore, the more users you have, the more it’ll cost.
Are you going to host the software yourself on your own infrastructure? Or are you choosing a cloud/hosted service that the vendor will host for you?
While there are reasons a business may favor either method, doing it yourself will involve large upfront costs. If you’re trying to get started quickly or want to lower the initial price, going cloud will help significantly. Of course, cloud hosting involves fees over time, so in the long run, this will even out.
Implementing your ERP system:
Next up are implementation costs. The implementation requires a large input of work and man-hours on the part of the implementation partner. Some of these fees may be combined together, but here is a summary of the cost involved:
- Consultation costs.
During ERP implementation, the implementation partner will do a business and/or gap analysis and create a BRD document. This stage then requires a fee for the time and input of the consultants involved.
- Development costs.
Next, the partner has to modify the software you chose earlier to fit your requirements. This will include configuring it, adding customizations for new features, as well as creating integrations with other software. The more customizations/integrations you have, the more coding and development work will be needed, so that will also add to the ERP cost. Be disciplined when choosing customizations, but also make sure not to go overboard in avoiding them just to reduce costs. Some customization will likely be necessary so that the software fits your business.
After the product is developed, your users will have to go through training to make sure it works correctly both in function and in workflow. This will involve the creation of documents outlining the software, as well as live training to teach them and answer questions they may have. [Note: This doesn’t just involve the time of your implementation partner. It also involves your time and your employees’ time, which is a cost for your business as well. For more of these types of costs, see our hidden costs article.]
Maintaining your system:
Last of all, maintenance fees. After your company goes live with your new ERP platform, there will be maintenance fees involved in updating and upgrading your system. You may also run into questions in the future and need support for the system.
It’s important to remember that ERP systems are an investment. You’re investing money now so that you can reap large rewards in the future. These rewards will come in the form of reducing labor (e.g. automating business functions, reducing manual entry of data) and making your business more efficient. So make sure while you’re attempting to reduce costs, you don’t lose too much functionality from your ERP as well.
If you’re interested in implementing an ERP system or have any questions, let us know. You can reach us using our contact form.