As a company grows, it often reaches a point where manual processes can no longer handle the increased workload. This is when many businesses turn to Enterprise Resource Planning (ERP) systems. ERP systems provide many benefits for businesses that follow proper implementation steps and budget correctly. However, without a well-rounded understanding of your company’s ERP system, you can go way over budget during the process.
So, why are ERP systems expensive? To understand why ERP systems are so expensive, you need to know all the associated costs. This article will help you by explaining the direct costs to consider with an ERP system to avoid sticker shock. Let’s dive in!
Why is ERP so expensive? The cost of the software itself is usually the first cost that comes to mind when considering an ERP system. Still, many organizations struggle to budget for the initial software depending on whether they purchase a perpetual license upfront or pay for it via a monthly subscription.
Each option has upsides and downsides that could make one more suitable for your business. Consider the following factors for both options for an advanced ERP system.
- Perpetual licensing: A perpetual license requires businesses to pay a onetime fee to access their ERP system. Typically used for on-premise deployment, perpetual licenses benefit businesses that don’t want to rely on vendors or worry about renewing licenses on a scheduled basis. However, these licenses come at a hefty cost, and you’ll need to pay a significant amount upfront to access the software. Over time, you will generally make up for the increased upfront cost because you don’t need to make repeat payments.
- Subscription licensing: A subscription license allows businesses to pay vendors for access, typically monthly. Organizations that choose subscription licensing often do so for cloud deployments.
A benefit of this option is that the software is accessible from anywhere, which is not the case for perpetual licenses. A subscription license is more affordable compared to perpetual licenses. However, a subscription might cost you more over time with repeat payments than the onetime payment you get with a perpetual license, and teams will have to rely heavily on vendors.
ERP projects often require the help of a consultant. How much these professional charge for their services varies widely from one firm to the next. But if you want to keep your ERP project on budget, ask perspective consultants about their fees so you can accurately account for them upfront.
While it might seem like a smart strategy at first, you shouldn’t forgo a consultant to save money. Consultants can help you get the system up and running, but they can also help you identify opportunities for improvement in your processes. Without a large internal IT team who are experts in your company’s new software, you will undoubtedly require the help of a consultant to avoid costly errors. A trustworthy consultant can ensure you deploy your system on time and within your budget.
Data Migration Costs
Data migration can be a time-consuming and costly process and typically requires the help of an experienced ERP consultant. Extracting, cleaning, importing, and restructuring your data manually takes significant time away from your business and employees, and this lost time can end up costing your business big. Not including data migration costs in your ERP budget sets your business up for a significant shock when you see the final price tag.
Data migration costs depend on various factors that can influence the total price. These factors include:
- How many data sources you are migrating to your new system.
- The amount of historical data that needs to be converted.
- The amount of data and time spent extracting, cleaning, and migrating your data.
- The current format of your data.
For the new system to be effective, users must be up to speed using the new software. Training can be expensive, so it’s essential to budget for this cost. Typically, training requires you to hire a consulting expert to explain to your team how to use the new system. Depending on the consultant and the length of training, it could derail your budget if not planned for ahead of time.
Training costs can include prices for traveling to seminars and registration fees, particularly for more complex training processes. Determine the level of training necessary for your team before hiring a consultant.
Customization and Integration Costs
You may need to connect your new ERP with other software, such as an accounting system or CRM. There may also be adaptations you’ll need to make to the software for it to fit your business. Depending on your current technology, you may require different customizations and integrations–if you need any.
The more customization required, the higher the cost of your ERP system becomes. However, if your current technology integrates easily with your ERP system, the cost will be far more affordable. Most modern ERP systems provide standard reports–however, without specific customizations, these reports may not be as effective as you hope. Include costs associated with building these reports in your ERP system budget.
Top Tips to Stay Within Your ERP System Budget
While the cost of an ERP system might seem daunting, some tips help ensure that you stay within your budget. Consider the following suggestions as you implement your ERP system.
- Outline clear goals, including a budget, timeline, current issues, and other important factors.
- Stay realistic with your expectations.
- Don’t forget about data conversion costs.
- Avoid scope creep.
- Determine the reporting needs you’ll require for your new system.
- Determine the integrations and customizations necessary for your ERP system. Document and update your budget whenever you spend on your system.
- Take advantage of an ERP implementation changelog to stay organized.
- Bring on consultants like the team at Intelligent Technologies early in the process.
Find the Best ERP Consulting Services with Intelligent Technologies
ERP project success largely depends on the consultant your team works alongside. The team at Intelligent Technologies, Inc. is prepared to help you navigate the implementation process to ensure a smooth, seamless, and cost-effective ERP solution for anyone curious about why are ERP systems expensive.
Our expert ERP consulting services are essential for small and medium-sized businesses looking for a trustworthy provider of all things ERP. Get started today by contacting our expert team, or downloading our eBook to find out more about staying within your budget for an ERP system.