Traditional cost estimates for purchasing and implementing a new ERP system, even for a mid-sized company, can run into hundreds of thousands of dollars. That’s many business have continued to “get by” with their legacy ERP system. So, they’re faced with this choice—replace it or do nothing at all. Some organizations opt to continue maintaining their current system. Doing so delays any benefits the business and its stakeholders can see from a modern system. Did you know that deploying modern Cloud solutions help will significantly reduce the upfront costs?
Switching over to a newer, more advanced ERP system may seem appealing, but it can be challenging to get a clear sense of what it will actually cost. Accurate up-front pricing can be hard to come by, but businesses must consider the costs of:
- Purchase (on premise or cloud)
- Deployment preferences (on site, private cloud, SaaS)
- Data Migration
- New hardware
- Software configuration
- Annual Maintenance and Support Costs
While each of these are quite impactful in terms of project costs, determining the true cost of ERP replacement also requires looking at other factors:
True Cost = ROI – TCO
This simple formula considers the impact of ongoing operating expenses. A cloud ERP can save on costs, especially if you pay by resource consumption, rather than rate per user. True cost considers Return on Investment, or ROI, which requires measuring various metrics that contribute to cost savings. Total Cost of Ownership, or TCO, refers to the total cost of owning and maintaining an ERP system over its life. It includes an annual maintenance fee, personnel costs, hardware and other hidden software cost factors.
Annual maintenance fees are generally around 18 – 25% of the software’s list price, which equates to repurchasing the system close to every 4.5 years that you use it. This leaves you with two options. You can continue with your current legacy system, leveraging “The Cost of Doing Nothing.” And virtually getting nothing in return. Thus guaranteeing not having the chance at reaping the benefits of a more modern ERP system for your business. On the other hand, replacing a legacy system does introduce a short term disruption, but over time will leverage your investment. The improved modern ERP functionality alone will lead to increased user satisfaction, quicker ROI and other system improvements.
What Core Applications Are You Planning to Implement?
In traditional ERP systems, the specific applications you add to the ERP system can directly affect cost because you are adding a new module. Base implementations can include some financial modules such as general ledger, accounts payable, accounts receivable and reporting applications. Additional functionality such as Project accounting, customer relationship management (plus customer portals) and distribution applications such as inventory, purchasing and sales, are ones your business will likely implement as well. A manufacturing business will typically need bill of materials/routing, production control and materials requirements applications as their base set of functions.
Add-on applications for customizing the system to your business’s specific needs impact overall cost as well. Other factors to consider include:
- Complexity of implementation, whether it’s simple, average or complex, determines the amount of effort involved, which in turns helps determine the cost of ERP replacement.
- Degree of implementation, training and on-going support required of an implementation partner, which involves a varying range of technical/non-technical tasks.
- The hourly rate of IT staff/contractors (typically ranging from $30 to $60 per hour), that includes wages, taxes, benefits, tools and physical space.
Pay particular attention to Cloud offerings, because they use non-traditional licensing models that offer much of the main ERP functionality all for one price, rather than by module and by User. Once example of a modern Cloud ERP solution is Acumatica, a cloud-based ERP system. With a consumption based license model, sold by functional suite offers scalability at an affordable price. No more adding a module here and a user there. The consumption model offers not only scalability, but predictability in the total system cost. So when considering an ERP replacement, keep these types of nuances in mind. These newer products can help organizations save money (both up front and over time) by simplifying the license costs and reducing the complexity of an ERP replacement. Acumatica offers a full suite of business management applications and industry specific solutions along with rapid integration and scalability. If you want to explore the true cost to you of updating your ERP with Acumatica, let’s talk.