How much does an ERP Implementation Cost?

How much does an ERP Implementation Cost?

Are you curious about the ERP adoption costs? According to reports for 2022, the average per-user cost of ERP systems has increased dramatically. Choosing the appropriate ERP model, allocating funds for upkeep and training, and comprehending the advantages of ERP in terms of bettering supply chain efficiency, financial management, and process streamlining are all important factors to take into account. The decision between perpetual and subscription licensing, as well as security and customization requirements, influence the total cost of an ERP investment.

A recent statistical study by FounderJar shows that the global ERP market value is estimated to hit US$ 123.41 billion by the year 2030. As the demand for ERP (enterprise resource planning) systems increases, many organizations are either prioritizing ERP implementation in their infrastructure or looking forward to upgrading their existing ERP system.

Many factors are involved when deciding on suitable ERP systems for your enterprise. ERP implementation costs are one of the biggest concerns for buyers. The ERP budget should be strategically planned according to your business requirements.

As the ERP investment cost is high, you need to ensure that the ERP is providing the desired value to your firm. The ERP license fee is just a part of the big picture. We’ll delve deeper into ERP costs, model pricing, ERP solutions, and factors affecting ERP costs in this article.

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How much does an ERP Implementation actually cost?

The big question that almost every organization has is, “How much does ERP software cost?” Well, the ERP cost has changed drastically in the last five years. According to the 2022 research, the average per-user cost of any ERP software is $9,000, which is slightly more than the per-user ERP cost in 2021.

Now, suppose we calculate this to the total number of users in any large-scale enterprise with other miscellaneous costs. In that case, the total ERP implementation cost estimation for mid-sized businesses can easily range between $150,000-$750,000. For larger, multinational businesses, this figure ranges in the many millions. As the implementation budget is costly, enterprises need to make a wise budget plan that meets their organization’s needs. From choosing an ERP model for your business to creating an ERP budget, let’s discuss everything one by one.

Firstly, why is investing in an ERP solution module worth it?

Need for ERP solution

ERP is a software solution system that helps you run an entire business organization with ease. It streamlines the process and automates the complicated core processes in different sectors of an enterprise. ERP solution software is widely used to upscale any project management process within an organization.

That’s why ERP training is crucial for an entire organization, as it helps in making sorted data-driven decisions to enhance the workflow efficiency of any business. The new ERP software costs are high but can be justified as it reduces the labor costs for businesses and increases the order-to-cash cycle with enhanced business intelligence decision-making.

Supply Chain Efficiency

It manages the supply chain management processes within the company. ERP system helps to build an efficient flow for product tracking, which contains tracking the shipment orders, product returns, vendor scheduling, processing the claims, and much more.

Finance Usage

ERM software is used in the accounting and finance sector of any organization to streamline the finance processes taking place within the company. It is insightful for the finance management of business in many ways, such as budget management, tax and revenue management, etc.

Manufacturing Process Usage

Managing complex products at once is a bit challenging for organizations. ERP assists in planning and product lifestyle management, product orders, etc.

CRM (Customer Relationship Management) Module Usage

Enhances the efficiency of any enterprise by providing solutions to improve customer service and relationships, centralized systems, marketing strategies, lead generation, etc.

Business Intelligence and Inventory management

It helps you make data-driven smart decisions with in-built tools to help your firm be more aligned with industry standards. ERM software also helps businesses with inventory processes such as scanning, order and stocking automation, inventory resource control, etc.

Human Resources Management

The HR team is the right hand of any business. ERP software, with the help of HR management, can integrate several departments, collect feedback, accomplish business process goals, etc.

Elements to Create Your ERP Budget Pla

There are certain components to consider before investing a huge amount in new ERP software. There are many ERP systems available in the market according to the number of users in your organization.

What Experts Say?

“What gets measured gets managed”

– Peter Drucker (Management consultant, educator, and author)

Before selecting an ERP vendor for your business, ask yourself these few questions:

How should you do enterprise resource planning that matches your budget and still does its job? What are the budget criteria for ERP implementations? What are the additional hidden costs associated with an ERP system? The cost to carry out any ERP project requires a hefty amount of money, so when creating an ERP budget, make sure the cost aligns with your financial budgeting plan while implementing the solution.

Consider investing in an ERP solution only when an enterprise can support recurring ERP costs alongside miscellaneous ongoing costs. It is important to consider this factor because a huge investment is involved in ERP implementations, and it should benefit your business processes while still being cost-operable by the company. The essential components of creating an ERP solution budget are as follows:

ERP Training

The ERP system installation process includes training your employees on how to use ERP software. The process includes training your IT staff and other users with high-quality training materials, user guides, E-books, etc. The company’s staff should utilize the training materials to their maximum use in order to get full use of the money.

Essential Maintenance

Just like any other software present in the market, ERP software also requires necessary maintenance in times of technical difficulties. The software may require timely upgrades as some new features are launched. To provide necessary support and maintenance, some ERP vendors provide customer support features, such as 24/7 phone queries, an interactive ERP portal in case of any doubt, etc.

Customization Modules

Every enterprise has its core requirements, which may lead to additional add-ons in the ERP package. Suppose your selected package may have manufacturing, production, and inventory management tools, but the current situation of the company requires CRM. In that case, customizable modules integrate with your current system system to provide you with the best of both worlds.

Security Support

As we know, cyber-attacks like phishing, malware, etc., can be threatening to the systems. Security is a major concern for companies. The system must be integrated with data encryption, user authorization rights, authentication, and much more to safeguard the company from any malicious intent. Although the cyber security cost is expensive, it should be taken into consideration in regard to the company’s safety.

Vendor Support Post-ERP Implementation

After the new ERP software is installed successfully, the vendor and your ERP training vendor should provide you with the necessary post-ERP implementation support. The cost of installation is high, and your employees may face any difficulties during the training phase.

Number of users

The number of users in a firm may vary depending upon their business scale. We have already calculated the per-user cost when implementing a new ERP system, so estimate the value of your ERP budget. Plan the budget that suits your organization, as the budget may differ according to your business size and requirements.

ERP Testing

ERP software is a reassurance step for any company. If we consider the installation cost of ERP software, it is crucial to verify and test the ERP solution’s functioning during the implementation of software. It is the process of testing the ERP system to check if it passes the QA (Quality assurance) test before launching it in your company.

Understanding the ERP Software Pricing Model

ERP (Enterprise Resource Planning) software simplifies business operations and increases productivity, and choosing the right ERP pricing mode is an important decision for any organization. Primary pricing models include the perpetual licensing model and the subscription licensing model. Before deciding on the budget, it is important to understand the key factors that influence the model pricing.

Perpetual Licensing

Perpetual licensing for ERPs is a licensing model that grants a company permission to install and run the ERP software on its servers. A one-time licensing fee allows unlimited access to the software while it is hosted on the in-house servers of an organization.

It has proved to be very advantageous when there is infrastructure to support it effectively. Perpetual licensing is mainly dependent on the substantial initial investment required for hardware. Organizations with existing hardware resources can benefit from this model. SAP S/4HANA is a type of perpetual licensing-based ERP.

Advantages

Permanent Usage: Once the charges are paid beforehand, access to all the features and modules is allowed permanently. This diversifies the range of operations performed by an enterprise.

Control Over Updates: Once a version of software is installed, the risk of updating to a new version for greater costs is reduced, and the hassle of frequent changes is minimized.

Long-Term Benefits: If the ERP system is used for a long time with costs paid upfront, it provides cost-effective benefits in the long term.

Disadvantages

Greater Upfront Costs: Infrastructure to implement the ERP system, in-house hosting, and capable IT support might bring in greater costs as installation is one-time.

Expensive to Scale: If a business grows or the need for improved hardware support comes in, the expenses will be higher to upgrade the installed ERPs.

Subscription Licensing Model

Software as a Service, or subscription-based licensing, is a modern model in which businesses pay regular fees on a monthly or annual basis to access and use the ERP software. This model is very flexible and also makes the expenses predictable.

Subscription licensing eliminates the need for high initial hardware costs as the software is hosted on a vendor platform and is accessible via the cloud. The fee, which is paid over time, covers ongoing updates, maintenance, and support, ensuring access to the latest features and security. Microsoft Dynamics 365 and Oracle Cloud ERP are the SaaS ERPs.

Advantages

Easier Scalability: The ease with which SaaS-based ERP software provides during the scaling of businesses is unmatched, as the plan is upgradable as per the enterprise’s needs without changing infrastructure.

Always up to date: As the fee is getting charged in a shorter amount of time, the updates are very frequent, and the diversity in tools and modules increases over time in subscription-based ERPs.

Lower setup costs: The need to set up initial and on-premise hardware infrastructure is eliminated as the vendor is hosting the system.

Disadvantages

Security Concerns: Many vendors provide in-build security features and protection against data breaches or malicious attacks. However, if something is messed up with an update, it risks the whole ERP system.

Sudden Expenditure Increase: Unexpected demand and increased use of the SaaS service at any point can result in sudden growth in the charges, which may be unexpected.

The Factors that Affect the Price of ERP Software

The ERP implementation costs may vary depending upon different factors, such as the size of your organization, the number of employees, post-maintenance costs, etc. Different factors affecting the price of ERP software are as follows:

Selecting a Suitable Model

Choosing the correct ERP solution is one of the most critical decisions to make while setting up an enterprise. Different software has different pricing structures; some require an upfront payment to use the software, and some are subscription-based services.

A suitable ERP system provides a solid return on investment (ROI), so choosing a model that suits diverse needs and adding modules as per those needs is important.

Impact of Customization

A uniform system cannot serve the various needs of an organization, regardless of size, industry, and processes, making customization an important factor in determining ERP implementation costs.

Organizations should carefully evaluate their specific needs and determine the level of customization and additional custom modules required according to project guidelines before selecting an ERP vendor.

Choosing the Right Partner

Selecting a partner with experience in a similar or exact industry customer, alignment with the partner’s methods of working, years of expertise, and brand value are necessary to consider for a cost-effective ERP system implementation.

Consideration of Deployment Models

One of the crucial business decisions while considering the cost of setting up an ERP system is how it will be deployed. In an on-premise deployment, the ERP software and associated hardware are installed and maintained within the company’s physical infrastructure.

Cloud-based ERP solutions, also known as Software-as-a-Service (SaaS), are hosted on remote servers and accessed through the Internet. Expenditure is different for both types of deployments.

Maintenance Costs

Support and maintenance expenses refer to the ongoing costs involved in taking care of an ERP system after it has been implemented. It also includes charges for long-term support from the vendor in case any problem arises in the system and the amount for software updates. Enough support and maintenance ensure the optimal performance of the system. These amounts vary among different vendors.

Investing in Training

Educating and upskilling staff members to make full use of the installed ERP system also comes with a cost. User Training is necessary to guarantee smooth processes, enhance user adoption, and reach organizational goals.

Training can be continuous or one-time. Some vendors provide free materials and resources for the users to get started with.

Scalability for Future Growth

The enterprise resource planning system must have the ability to grow, apart from the ever-changing needs of the company. Scalable ERPs handle a larger amount of data, handle a heavier workload, and add more users.

More scalability results in lower costs and fewer major changes. Factors like data accessibility, real-time operations, and performance monitoring should also be considered. Future-proofing of ERPs plays a major role in business expansion.

Third-Party Integration

Successful implementation of ERPs depends on their integration with the organization’s existing technology infrastructure, which includes allocating internal resources and engaging external third-party vendors. Calculating the budget must include third-party module support costs. A vendor with a wide range of external features may result in reduced expenses and the seamless working of the system.

Conclusion

The purpose of installing an ERP system in your business is to streamline the various business processes and give a strong structure to the different modules required within the business. As the ERP software installation costs are high, every company should consider different factors in compliance with their business requirements to see which ERP solution matches their needs.

After installation, training your IT staff or other team members and staff is a bit challenging. Onboard is here to your rescue. We not only provide customized ERP training for your employees but also provide unparalleled training materials supporting your ongoing project requirements. Onboard specializes in providing niche ERP training to high-profile clients, large-scale enterprises, and businesses all across the globe.

Frequently Asked Questions on ERP System

Is the ERP project team training compulsory for organizations?

Yes,  ERP project team training is compulsory as the systems can be complex and have a wider range of functionalities. For newer members, if they lack experience with the enterprise’s ERP, they need to go through training to understand the system and become more proficient. These training sessions can go from short-term to long-term.

What is the difference between ERP and CRM?

ERP stands for Enterprise Resource Planning, which is a system that does everything from helping businesses make crucial decisions to managing day-to-day business activities. CRM stands for Customer Relationship Management, and it is a system to store customer data and keep a record of customer-related activities and operations.

What factors make ERP costly?

The industry where ERP needs to be implemented, the size of the organization and the users that are going to use the system, the requirements and complexity of the enterprise, and the hidden costs are some of the factors that make ERP system installation costly.

What are the benefits of using ERP in an organization?

There are many benefits to implementing an ERP system in an organization, like improved customer service, better security and handling of data, better communication across departments, precise decision-making in business, increased flexibility, reduction of time in process completion, and boosted cash flow.

What do you mean by the customization process of ERP?

As a business is always growing and the demands can be unexpected and sudden, in order to add functionality that aligns with these demands, which makes the ERP system less cumbersome, customization of ERP is done. Customizing is changing the ERP to meet business demands.

What is the ERP implementation life cycle?

There are eight stages total through which an ERP system is implemented: selection of a suitable package, planning of the project, GAP analysis,  re-engineering implementation, training, and testing, then the application stage where the system is implemented, and then taking care of it. Maintenance is done in the end.

What are change management strategies for the successful implementation of ERP software?

The major change management strategies that ensure the successful implementation of ERP are Ensuring leadership understands the implementation strategy and empowers the team, Monitoring the progress, identifying risks associated with it, and engaging key stakeholders for the upcoming change. Making a communication plan to inform all stakeholders about the project details and transition process. Redesigning jobs for the new organization, providing training to the staff, and preparing stakeholders for the impact of the ERP system.

What are some challenges faced in ERP implementation?

Management of data and inadequate project management Inefficient data migration, validation of data, managing the changes while maintaining proficiency and security.

Jordan Locke
Jordan Locke
Service and Delivery Manager

While Jordan was studying International Business and Politics in South Korea, he gained his first experience of teaching while working as an English teacher at the university. This is where he gained an insight into how valuable to the learner it can be to impart knowledge in a way thatis simple and accessible. He recognised these skills could be transferable to business systems training and hasn't looked back. Jordan has progressed with the business from developing and delivering a variety of training solutions to now taking on the role of Service and Delivery Manager, overseeing the operations of the business.

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