Navigating the world of ERP software/system pricing can be a daunting task for company executives, Independent ERP consultants, and businesses of all sizes, especially in industries like manufacturing and logistics. The complexity of ERP system prices is influenced by various factors that not only impact costs but also determine the success of your ERP project. This article delves into the intricacies of ERP system pricing, shedding light on key factors that drive costs and helping you make informed decisions. So let’s begin by looking at the categories of costs that may influence your ERP projects.
Categories Influencing ERP Project Costs
Understanding the categories that impact ERP project costs is crucial for a comprehensive overview. The complexity of your project, whether in the regulatory sector or beyond traditional ERP capabilities, can affect the cost elements. Here are the primary categories to consider:
1. ERP Software Licensing Costs
2. Project Implementation Costs
3. ERP Add-on Licensing Costs
4. Integration Platform Licensing Costs
5. IT Infrastructure and Hosting Costs
6. Internal Staffing Allocation and Opportunity Costs
7. ERP Support Costs and Upgrade Costs
Now let's break each category down
Looking at the licensing cost, one of the critical components affecting ERP system prices is the licensing model, with on-premises and cloud options presenting distinct differences. The on-premises model involves a one-time licensing fee, typically 2.5-3 times that of a Software as a Service (SaaS) user. However, on-premises users also face additional annual software maintenance costs, around 25% of the initial licensing fees.
To compare these models, consider a scenario with three user tiers supporting 60 employees. Calculating the total spend over five years for both on-premises and SaaS options reveals these insightful results:
SaaS: Standard user = $100/month, Manager user = $150/month, Admin user = $250/month
Total 5 Year Spend Saas = $102,000 x 5 = $510,000
On-prem (one-time fee): Standard user = $3,000, Manager user = $4,500, Admin user = $7,500
Additionally, when factoring in costs for hosting, infrastructure maintenance, backup, and upgrades, an assumed monthly expenditure of $2,000 is considered. This estimate covers various expenses, including Windows licenses, VM licenses, hardware, a special internet connection, electricity costs, installation, and other potential ancillary costs. The total 5-year spend, including Maintenance and Hosting, is determined by adding this estimated hosting cost to the previously calculated 5-year on-premises expenditure, resulting in a total of $693,750.
In this scenario, the on-premises option may seem more expensive initially. Still, hidden costs such as consulting and internal efforts for data center maintenance could make it less cost-effective in the long run.
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Concurrent Option
An on-premises concurrent user model, while uncommon in cloud ERP providers, some others, such as Acumatica offer this option which could offer potential cost savings.
The model allows multiple users to access the same license seat simultaneously, making it suitable for businesses with seasonal or shift-based workflows. But then, its cost could be 2-3x of the regular user.
SaaS ERP System Price Option
Under the Saas ERP system price option, we have the following:
When it comes to SaaS ERP systems, the named user option emerges as the prevailing cloud ERP licensing model. This model involves paying for each user, but it's important to note that certain ERP vendors may tack on additional surcharges for base costs or stipulate a minimum number of ERP users. Edition upgrades can also impact the ERP system price under this model.
Some ERP vendors simplify the process with a straightforward flat ERP system price-per-user option. However, the drawback lies in potentially higher costs for non-admin users. Additionally, for ERP vendors catering to smaller businesses, tiered pricing may be in play. For instance, the starter edition could be more budget-friendly, but as your user count surpasses a threshold, you might be transitioned to a higher tier, thereby increasing your per-user ERP system price.
In short, understanding ERP system prices involves a nuanced consideration of various factors. For company executives, Independent ERP consultants, and businesses in diverse sectors, navigating ERP software costs is a strategic endeavor that requires careful analysis to ensure a successful and cost-effective ERP project. By comprehending the categories influencing costs and comparing different licensing models, you can make informed decisions tailored to your business needs.
For more insights into other add-on costs and variables that could not only impact the actual costs of your ERP software but could also determine the outcome of your ERP project's success or failure, tap on this link now.
