How to Calculate Your ERP Implementation Costs (2024)

The beauty of an enterprise resource planning (ERP) solution lies in the many ways it can beadapted to each company’s unique business needs. Mainly interested in financial andaccounting capabilities? No problem. Need to bring human resources, customer relationshipmanagement, manufacturing and supply chain management into the fold? Sure. As a result ofthe differing needs, prices for ERP can also wildly differ — and no company wants tofind out halfway through an ERP implementation that it doesn’t have the funds tofinish the work.

Another critical decision that impacts cost is where the ERP system is deployed: on premisesor in the cloud. In recent years, more companies have opted for the latter, due, in part, tothe lower total cost of ownership. For that reason, this article focuses on cloud-based ERPimplementation, outlining factors that influence pricing and ways to build an accuratebudget.

What Goes Into an ERP Implementation?

The components of an ERP implementation largely depend on a business’s individualneeds. By definition, an ERPsystem enables a company to manage multiple operational functions — finance,human resources, supply chain, manufacturing and marketing, to name a few — from asingle, unified database, so that stakeholders from across the business all work from thesame knowledge base. ERP can also help streamline processes, increase productivity andimprove decision-making.

To be successful, an ERP implementation requires an implementationstrategy that details how the new system will be rolled out: all at once, in phases,alongside use of the legacy system or as a combination of the preceding approaches.It’s also important for businesses to understand the phases of a cloudERP implementation:

• Discovery and planning: It’s a bestpractice for an ERP implementation to begin with research, usually involving aproject team that scopes needs from across multiple departments and stakeholders,conducts vendor interviews, assesses demos, narrows down the selection list and signs acontract. In this phase, a projectplan is built that includes goals, timelines and budgets for the implementationand ongoing operation of the system.
• Design: Armed with details from the project team, an ERP implementationteam comprising key stakeholders, internal and, possibly, external resources comestogether to handle the next three stages: design, build and test. In the design phase,the project team outlines how to create new workflows into the new ERP solution, relyingheavily on the input of those expected to use the new ERP most. The implementation teamalso performs a gap analysis to evaluate where the limitations of the ERP solution couldnegatively impact desired outcomes. This gives the company ample time to work with itsvendor and other partners to design a solution that overcomes those gaps.
• Development: Now the ERP implementation moves into development, whereinternal and, if needed, external resources work with the ERP vendor to customize thesystem to meet the organization’s requirements. In this phase, the implementationteam will need to build customizations based on the gap analysis from the design phase,as well as consider integrations with other critical business systems with which the ERPneeds to interact, such as industry-specific software. Importantly, the developmentphase marks the beginning of the critical data migration process from multiple,inconsistent systems into a single, clean, central database.
• Testing: Depending on the development environment, testing may not be aseparate phase. In agile development methodologies, for example, development and testingoccur simultaneously. Testing also can be performed on specific components of the ERPsystem, depending on whether the implementation is to be rolled out all at once or inphases. Either way, this phase should involve everyday ERP users, who will need to checkthe accuracy of workflows and whether data migrated successfully. End-user training isalso likely to begin.
• Deployment: Deployment success depends on an all-hands-on-deck approachthat unites internal, external and vendor resources to help users overcome their naturalresistance to change and adapt to new processes. In this phase, data that was toocritical to move during earlier phases is now migrated. Some companies may continue totemporarily run the new ERP in parallel with their existing systems, as a safety net.Some companies also minimize deployment risks by launching function-specific modulesfirst, assessing the results and then adding new modules over time.
• Maintenance and support: Naturally, important systems implementationslike ERP don’t end with the flip of a switch; project teams continue learning andadapting well after the system launches. And while cloud-based ERP systems areautomatically updated by their vendors, the shifting technology stack at most companiesmeans integrations between an ERP and outside systems are always possible.

How Much Does ERP Implementation Cost?

The reality is, there’s no simple answer as to how much an ERP implementation costs,simply because the variables around each implementation differ from one company to the next.The ultimate price will be influenced by organizational structure and number of users,desired features, internal resources, the amount of data the business has and the number ofadditional systems that need to be integrated. Broadly speaking, estimates for an ERPimplementation — in the cloud or on premises — can run from the low-to-mid fivefigures for small companies to well into the millions for larger organizations. Of note,on-premises solutions require larger up-front and ongoing costs than cloud-based solutions,because the customer must purchase and manage their own infrastructure, hardware andsoftware licenses.

Key Takeaways

• Cloud ERP implementation costs depend on the scope of the implementation, the resourcesavailable and the degree of customization required.
• Variables also include number of users, desired functionality, extent of customizationsand integrations.
• The cost to implement a cloud-based ERP solution is less than an on-premisesimplementation, which involves many up-front expenses.
• Some expenses incurred during an ERP implementation can be capitalized, meaning thatthey are spread out over time.

ERP Implementation Costs Explained

Cloud-based ERP implementation costs fall into two overall categories: software subscriptionsand people costs — and each one has a number of variable subsegments. Here’s howthese costs typically break down.

Subscription costs: The primary cost of a cloud ERP system is the subscriptionfee. It is usually expressed in terms of the cost per individual to use the softwareon a monthly or annual basis. Shareable subscriptions, sometimes known as“floating” or “concurrent” subscriptions, are a less common practicethat allows a specified number of end users to access the system at the same time. Anotheroption (also rare) is a consumption-based model. In this scenario, fees are based ontransactions, such as invoicing or processing sales orders. The consumption-based model maysuit certain businesses, such as those with very high-priced products but low transactionsannually, though it means costs become unpredictable and not cost-effective in the long run.

Some vendors incorporate elements of the consumption model into more traditional usersubscription fees by adjusting user subscription fees to accommodate the profile and needsof certain levels of users. For example, some ERP users may require more access to certainfunctionality, resulting in higher subscription fees, while others require mostlyinquiry-only access with transactions limited to, say, moving inventory or recording workcompleted on a shop floor.

Subscription fees usually cover all of the necessary components of ERP software, but pricingdepends on which ERP modules and which specific functions within those modules will be used.Clearly, if a business is using only the financial component of an ERP solution, it’llcost less than if it uses multiple modules. There also may be additional functionality— perhaps industry-specific capabilities — that go beyond the cost of standardfees, requiring add-on costs (to be discussed). For example, manufacturers may requirespecific ecommerce functionality that goes beyond the core features of their ERP solution.

Staff: An ERP implementation involves internalresources, some of whom may be dedicated full time to the project and others who areneeded only during specific phases; for example, members from the financial team may bepulled in to test the ERP system’s financial module. In either case, the cost of thattime (a nonmonetary cost, addressed later in this article) should be factored into anyimplementation budget, as well as the cost to backfill those resources’ dailyresponsibilities, if necessary, while they work on the ERP project.

Depending on the size of the company and the scope of the implementation, an ERPimplementation may also involve external resources, in the form of consultants who help withvarious portions of the rollout, such as project management, data migration, testing ortraining.

The most common external resource costs for cloud-based ERP systems are:

Project management: This includes everyone from the team that evaluatespotential solutions to the team tasked with overseeing every aspect of the rollout(planning, execution and tracking). These resources are most likely going to be internal.

Business analysts: These resources are the key to evaluating the currentstate of business processes, policies and workflows at a company, and then detailing how towork their findings into the ERP. These resources are typically internal because theypossess deep familiarity with the company’s processes and workflows.

Technical resources: This team is responsible for the technical aspects ofthe implementation, from understanding the technological capabilities of the ERP system,customizing the solution to suit the company’s specific needs and overseeing themigration of existing data into the new system to building integrations with other keyoperational systems and testing. These resources could be internal or external, depending onthe size of the company and the scope of the project.

Change management: An often-overlooked element of an ERP implementation— particularly in the case of larger-scale rollouts — is the need to prepare anorganization for changes in workflows, processes and systems. A successful team can reduceemployees’ natural resistance to change by serving as a central hub for frequentcommunication to staff about project scope, timelines, impacts, training and more, as wellas addressing concerns. Change management resources aren’t always found in-house, soengaging consultants for this task is common.

Training: End-user training is a key component of any successful ERPimplementation, ensuring that the people who will use the system are prepared for, and arecomfortable with, the solution. Whether conducted in person or via online tutorials,training should start early and continue during and after the rollout. Software updates mayalso require additional training. Training resources can be internal but often involve somedegree of assistance from the software provider, which may not necessarily be included inthe implementation price.

Support: Many vendors package support into the price of their subscriptionfees, yet even when they do, it may be for only a finite amount. Increased levels of supportmay involve additional costs, so it’s important to understand the vendor’sapproach before signing a contract.

Factors That Influence ERP Implementation Pricing

ERP implementation pricing will vary, based on the size and complexity of the implementation,as well as vendors’ differing pricing models. Factors that impact pricing include:

• Number of users: Many cloud ERP vendors charge fees based on the numberof users accessing the system, so nailing down that number as accurately as possible iskey to gauging what will likely be the project’s most significant long-term cost.An estimate should also take into account the additional number of users who may needaccess to the ERP system, based on projected growth. Level of usage is yet anotherconsideration, because it could involve tiered pricing: Some staff may be heavy users,while others may need only to query the system, either of which could affect theper-user fee.
• Number of modules: Part of what makes a cloud ERP system so attractiveis its modulardesign, which means a company can plug in new functionality as its needs growand change over time. A small retailer may decide its ERP system’s core financialand accounting functions are enough to begin with, but, as it expands, it decides to addmodules for inventory, order and warehouse management. Each additional module willimpact costs, though many vendors will bundle multiple modules for a discounted rate.
• Add-ons: Cloud ERP vendors often break down their modules into smallercomponents that customers can purchase for deeper functionality, such as forindustry-specific reasons. These ERP add-ons and extensions can also be purchased fromapproved vendor partners.
• Customizations and integrations: Despite its breadth of functionality,an ERP solution will likely require some degree of customization to, for example,integrate with other software. Certain industries, for instance, use industry-specificsoftware to house critical information that needs to flow into an ERP. In addition, somecompanies may choose to use ERP modules from different vendors. Larger integrations willlikely involve more work and, in some cases, require a separate integration platformsolution to manage them. All are cost factors.
• Consultants: An ERP implementation often requires resources that acompany doesn’t possess in-house. That’s one reason why ERP implementationconsultants are so popular. Consultants can be helpful in a number of areas: softwareselection, business management consulting, project management, change managementconsulting, technical consulting and/or training staff. Consultants are likely to followone of three pricing models: fixed price (one price for everything), time and materials(hourly rates plus expenses) or recurring cost (a variable weekly or monthly fee,depending on levels of effort).

Consider Nonmonetary Costs

Not every business expense has a hard-dollar cost associated with it. For example, asubscription fee is easy to understand and calculate, but nonmonetary (or soft) costs areequally as important when it comes to ERP systems and should not be overlooked. Inparticular, two types of nonmonetary costs can impact budgets:

• Time: As mentioned earlier, time spent by internal teams on the ERPimplementation means time away from their day jobs, stalled projects and, of course,delayed or lost revenue.
• Productivity: Another nonmonetary cost is the loss of productivity thatoccurs when staff members have to put their everyday responsibilities aside to assistwith the ERP implementation. Employees may also work more slowly until they get used tothe new system, which can cause productivity to lag.

Justifying the Cost of ERP Implementation

Like any project that needs a budget, building abusiness case to justify the expense and get buy-in from key stakeholders for an ERPimplementation is a must. A strong business case should:

• Identify and analyze current issues: What problems does the companyhave today? What’s the business impact of those problems? What processes needimprovement?
• Assess the benefits of ERP: How will the ERP solution solve theproblems identified? What realistic goals can the ERP system accomplish — forexample, will the company benefit from greaterefficiencies, optimized inventories or improved customer service? What monetary valuecan be assigned to achieving those goals?
• Evaluate ERP options: Which vendors can best deliver results for theproblems and goals outlined above?
• Estimate project costs: Calculate the hard (software subscriptions) andsoft (people) costs for all of the factors listed above.
• Determine ROI: Return oninvestment (ROI) helps demonstrate whether an investment is worthwhile. Tocalculate, divide the monetary value of anticipated ERP benefits, such as lower humanresources costs and increased revenue, by the costs of implementation and ongoing use.Multiply by 100 to get a percentage.
• Identify implementation risks: Identify all possible risks — suchas delays in timelines or failures of the ERP to achieve certain goals — andcalculate both the likelihood of those risks and anticipated costs.
• Create a high-level ERP implementation plan: Communicate expectations,costs, resources, challenges and timelines.

Pro tip: Demonstrate how an ERP solution can solve each stakeholder’s specific problem.For example, financial teams may be interested in faster financial closes, whereas customersupport teams will want to hear about faster support times.

Determining What ERP Implementation Features Your Business Needs

Selecting the right ERP implementation features requires careful planning, analysis andconsultation with key stakeholders, all of which are vital parts of the discovery phase ofimplementation, detailed earlier. It’s also wise to factor in future needs. If acompany is planning an IPO in two years, for example, it might want to consider includingfunctionality to handle public company reporting requirements for financial closings.Companies that plan to expand internationally will need to consider capabilities supportingmulticurrency.

Of course, no one can truly predict the future, so it makes sense to prioritize future ERPfeatures based on the likelihood of growth projections. If an IPO is possible in two yearsbut will depend on market conditions, weigh the related functionality as a lower priority.If international expansion discussions are already well underway, however, be sure toprioritize the related functionality.

Calculating ERP Implementation Budgets

Calculating a budget is part of the discovery and planning phase of implementation, after avendor has been selected. Here are some questions to consider along the way:

• Functionality: What modules and add-ons do you need? What is thetimeline for your implementation of those modules — all at once or staggered? Morefunctionality equals higher costs.
• Number of users: How many users do you have? What levels of access dothey need? How many users do you estimate you’ll need in the next year? Two years?What is your vendor pricing model (monthly user fees, consumption-based)? Ifconsumption-based, what are your usage expectations?
• Implementation: Looking at the work to be done, how do you assessinternal skill sets for implementation? Where are the business’s strengths andwhere are its gaps? Which aspects of implementation can be outsourced and to whom? Howmuch is the vendor’s implementation fee?
• Data migration: Do you have internal resources for data migration— one of the most critical aspects of implementing a cloud ERP? What data and whatsystems require migration? What migration methodology should you use — all at onceor in phases? Should you outsource data migration and, if so, to whom?
• Customizations: What other systems include data and/or functionalitythat needs to be incorporated into the ERP? Will you handle those integrations in-houseor do you need consultants? What other technology might you require to manage thoseintegrations (e.g., a separate integration platform)?
• Training: Who will require training? How much training will they need?Who will perform the training? Does your vendor provide training as part of its price?What parts of training can be outsourced, if necessary? Where will the training takeplace?
• Support: What level of support will you need? Does your vendor includesupport as part of your license? How much support, exactly? Do you have internalresources? Who are the top outsourced options to support my vendor’s offering?

Creating an ERP Budget

A cloud ERP implementation does away with many of the hefty up-front costs associated withon-premises ERP, including investments in infrastructure, hardware, server licenses,maintenance, upgrades and resources, because all are included in a cloud subscription fee.But there are other ongoing costs to account for:

• Additional users.
• Subscription fees.
• Technical support
• Customizations, enhancements and integrations.
• Third-party resources.
• Ongoing training for system updates.
• Data backup and recovery.

A key consideration is how to account for implementation expenses. In the case of on-premisesERP environments, the one-time, up-front software license fee, as well as hardware andinfrastructure costs, can be recorded as capital expenditures (assets). This allowscompanies to spread the costs over time. Cloud-based ERP systems don’t have those sameexpenses, but others incurred during the implementation phase, such as coding, testing,customization, software for data migration, travel expenses for consultants and payroll fordedicated employees, can be capitalized per U.S. accounting rules for cloud-based ERPsystems.

Free ERP Implementation Calculator

Use our ERP implementationcalculator to estimate the cost of your ERP implementation.The calculator contains multiple line items associated with four main types of cost —software subscriptions, staff resources, IT and indirect — along with sample amounts,programmed to arrive at subtotals and the overall implementation total.

Choosing the Best ERP for Your Business

Choosing the best ERP solution comes down to understanding your business — itsstrengths and weaknesses, what it needs today and what it will need tomorrow. NetSuiteERP was designed and built in the cloud,providing companies with the ability to store data and manage their operations in onecentral system. NetSuite’s ERP solution includes modules for finance, inventory andorder management, HR, professional services automation, omnichannel commerce and advancedanalytics. With all of these pieces working together, you will be privy to a real-timewindow into your operations, with unprecedented insight into how to reduce costs, automateprocesses for greater efficiency and improve productivity throughout your business. Withreal-time reporting and analytics, NetSuite ERP becomes your hub for unlocking innovationand driving growth.

ERP solutions are important investments, which is why it’s so important tofind theright vendor partner and to carefully plan a strategy for a smooth implementation. A hugepart of implementation will be making sure you’re prepared for the costs. Manyconsiderations go into building an accurate budget that ensures that a project can be seenthrough to completion. Understanding how to calculate the costs can make the differencebetween being prepared for an implementation and suffering from sticker shock.

ERP Implementation Cost FAQs

How much of your ERP budget should be allocated toimplementation?

Generalizations about enterprise resource planning (ERP) budgets are difficult, given theunique circ*mstances of each company. One rule of thumb is to plan for 1% of acompany’s operating budget to cover ERP implementation.

What are the ERP pricing models?

There are many software licensing models, but enterprise resource planning (ERP) solutionsusually fall into the following categories:

• Perpetual license (on-premises only): Companies buy a single licensefor use indefinitely.
• Named-user subscription fee (on-premises and cloud): Companies pay fora specific number of individual users on a monthly or annual basis.
• Floating or concurrent subscription fee (on-premises and cloud): Anyonewithin the company can use the system, but access is capped at a certain number ofsimultaneous users.
• Consumption-based pricing (on-premises and cloud): Companies pay basedon the number of certain transactions conducted on the system over a certain period oftime, such as the number of invoices or sales orders.

Can ERP implementation costs be capitalized?

Yes, they can, if they take place during implementation and are directly related toimplementation, such as costs for testing, integration, software for data migration, andinternal and external resources necessary for implementation. Costs for ongoing training,data conversion, maintenance and consulting, however, should be expensed.

Why is ERP implementation costly?

Cost will depend on a variety of factors, the main one being whether the ERP is deployedon-premises (more expensive) or in the cloud. Other variables include the number of usersand modules purchased, whether customizations and integrations are needed, and the cost ofresources, including outside consultants.