Is the Cost of ERP Still Too High?
Exploring the Average Cost of ERP Systems Within the SaaS Industry
Highly competitive companies rely on Enterprise Resource Planning (ERP) solutions to streamline a variety of business operations. The disparity between a capable ERP system and outdated software can be the difference between a market leader and a struggling second-tier competitor.
While there are several software solutions companies rely on to enhance their business operations, ERP is perhaps the most valuable, as it can integrate a host of other software to facilitate efficient business operations and provide transparency to the business. When this occurs, departments are no longer siloed, and collaboration abounds. But a valid question for companies considering an ERP solution is how much does ERP software cost. Here, we’ll dive into possible costs, two primary pricing models, and what companies can expect when looking at implementing an ERP solution.
How much does ERP software cost?
There are a variety of ERP solutions, and one size does not fit all. The costs associated with ERP are often segmented between large companies (those over $1 billion in annual revenue) and mid-sized companies (those under $1 billion in annual revenue). One rule of thumb in measuring ERP costs is the revenue percentage model. For companies with less than $1 billion in annual revenue, an ERP solution could cost upwards of 3-5% of annual revenue, and for larger companies, that figure becomes 2-3% of annual revenue.
While these figures might seem out of reach for some organizations, other estimates place the cost of an ERP solution between $4,000 and $8,000 per user annually. It’s also important to segment ERP costs between the purchase price, the implementation cost, and the ongoing annual cost per person.
Compared to other SaaS solutions, such as CRM or Marketing Automation, an ERP solution is the most expensive. The silver lining is that CRM and Marketing Automation can easily be incorporated into many ERP solutions, thereby helping to save on costs.
ERP solution pricing models
Businesses can approach the use of an ERP solution for their company in several different ways.
On-premises approach
Some companies may want an on-premises ERP system where the software is hosted on their servers. In this case, the company may choose to build their own ERP system or, more likely, purchase a solution where they take ownership of the software or pay an ongoing licensing fee. That fee may include customization, additional modules, installation, and training.
In this scenario, the company has greater ownership of the system and can manage it in almost any way they see fit. There are often no costs-per-employee, and it can be deployed via desktop or mobile if the company has the infrastructure and resources to implement it this way. This approach also requires more IT staff to manage the solution, significantly increasing the price of ownership.
Subscription approach
Companies that don’t want the responsibility of hosting and managing upgrades of their ERP solution may choose the subscription approach. With this method, the company utilizes an ERP solution as a SaaS and pays a fee – usually per employee – to implement and deploy the solution in the cloud.
The benefit of a subscription approach is that the business does not own the software, is not required to maintain servers, and can automatically upgrade the system as technology warrants – all as part of their subscription price. The SaaS model also allows for additional modules to be added and the system tailored according to the company’s needs.
How much does it cost to implement an ERP system?
When discussing the costs of an ERP system, it’s essential to include all costs associated with total ownership. This consists of purchasing the solution, implementation costs, training, tailoring around specific models, integrations with a customer’s existing software, and more.
ERP Implementation costs
Implementation costs for an ERP solution for midsize or large organizations can cost anywhere from $150,000 to $750,000. Fees will depend on whether the software’s base package is purchased, or additional modules and tailored installation is included.
Cost per employee
ERP costs are typically determined by the number of employees slated to use the solution for subscription, SaaS models. While it’s nearly impossible to estimate the cost for a robust ERP solution due to the many variations that exist from different vendors, companies can expect to pay approximately $200 – $400 per month per employee for a subscription-based SaaS ERP solution.
Ongoing ERP costs
There are costs for selecting, tailoring, and implementing an ERP system and costs associated with maintaining the system for your organization. These ongoing costs include customer support, training, onboarding new employees, and changing modules tailored to your organizational needs. Additional costs can increase total ERP costs by 20-75%, depending on company requirements.
As one can see, there are a variety of costs associated with selecting and implementing an ERP solution for your organization. Whether you choose an on-premises solution or a cloud-based SaaS solution, your organization should consider the necessary costs of deploying the type of ERP suited for your company’s specific needs and objectives.
How Frank, Rimerman Can Help
Contact our ERP specialists today to see how we can help you transition to a more efficient operation with the right ERP solution for your organization.