Is the Cost of ERP Still Too High? Exploring the Average Cost of ERP Software Within the Life Sciences Industry
In today’s world of rapid innovation, an enterprise resource planning (ERP) system is practically required for sustained growth—especially in the life sciences industry. ERP software’s all-in-one management capabilities make it an ideal solution for life sciences businesses looking to oversee everything from the formulation process to inventory control to meeting compliance standards. But supporting growth comes at a cost.
Switching or integrating an ERP system is a major decision—and a serious investment. On average, businesses spend around 17 weeks choosing a system, and most of this time is spent deliberating the final price tag. So, as you start shopping around for systems, you’re probably wondering: how much does ERP software cost?
Throughout this blog, we’re answering some of the most frequently asked questions when considering the cost of an ERP system and outlining some key considerations to factor into your budget.
How much does an ERP system cost?
According to data from SelectHub, the average ERP system can cost anywhere from $75,000 to $10 million. This broad range doesn’t offer much clarity into cost, but it’s simply because the grand total is dependent on your business and its needs.
Think of choosing an ERP like buying a house. You probably have a list of things you’re looking for to meet your needs. If the current foundation of the house doesn’t check all these boxes, then you’ll need to factor in the costs for add-ons and customizations. That’s why many prospective homeowners seek move-in-ready homes to stay within budget. An ERP system is no different. The more add-ons and customizations you’ll need for your business, the higher the cost will be.
If you’re not quite sure how your business requirements will impact the overall cost, below are some considerations to keep in mind while browsing systems.
After considering the following factors below, our experts can help you get a customized price quote based off your company’s needs and financials.
What factors affect ERP cost?
Number of Users
How many users will be utilizing the system is one of the most overlooked factors when budgeting for an ERP system. Independent research from Software Path found that, on average, businesses can expect to spend $9,000 on each system user. Depending on the size and scale of your business, this can equate to a considerable extra cost.
It’s also important to remember that small to mid-size businesses are more likely to experience a higher percentage of system users, but research shows that employee utilization levels off as the company’s size increases.
Add-ons and Customizations
Much like home renovations, ERP add-ons and customizations aren’t cheap. System modification is the cause of overspending nearly 65% of the time, which is why it’s recommended to choose a system that is ready to use out-of-the-box.
For example, if you’re looking for customer relationship management (CRM) capabilities as well as financials and accounting, you would want to choose a system like NetSuite over Microsoft Dynamics GP, as Microsoft’s system does not currently offer any customer service capabilities. These services would need to be added at an extra cost. With this in mind, it’s important to understand which specific modules your business will need in order to avoid a long list of costly integrations and third-party add-ons.
Due to the complex and technical nature of ERP implementations, it’s recommended to partner with an experienced consultant or vendor who understands the ins and outs of your new system. However, be wary that implementation support often varies. If you’re looking for support or training beyond the initial implementation, this will likely come at an additional cost.
Over half of ERP implementations fail the first time around, making it critical to find the right implementation support from the start. This will save you from future costs should a rescue project be in order.
There are two methods to deploying an ERP system: on-premise or in the cloud. About 97% of businesses shopping for a new ERP system have their sights set on a cloud-based solution, typically due to the lower upfront costs. However, while an on-premise system will cost more upfront, these costs are evened out over time due to maintenance and upgrades associated with cloud-based systems.
So, your new system is implemented, but does anyone on your team know how to use it? The non-monetary cost of lost time often does not get factored into the ERP budget. Small to mid-sized businesses use an average of seven internal resources, while enterprise companies use about twenty-four. Even if you have a dedicated team of stakeholders, lost employee time and productivity should be factored into your budget.
Often, your implementation vendor will offer some degree of system training and support to get your team up and running on the system, but not always. Depending on the level of training, if on-site or online workshops are required, and the length of the training, this extra support will come at a cost.
Maintenance and Upgrades
On average, maintenance and support equates to 15% to 20% of an ERP budget. To keep your system running at its best and working to sustain growth, you’ll need to factor in ongoing maintenance and upgrades. For businesses in the life sciences industry, upgrades can be critical to maintaining compliance, as many FDA and regulatory requirements are integrated into the system. If an upgrade is not included in the base software cost, you’ll need to work with a vendor to make any of these changes.
What does the pricing model look like?
The deployment method you choose will typically dictate your pricing model. If you choose an on-premise solution, this will likely require a license—a one-time fee that grants you access to the system. Add-ons, customizations, and the number of users will be factored into this price upfront.
On the other hand, cloud-based systems typically offer subscription-based pricing, allowing customers to pay on either a monthly, yearly, or multi-year basis. Your subscription model will also be dependent on other factors such as minimum contract length and system functionality.
The benefits outweigh the costs
Investing in ERP may seem daunting, but it’s important to keep in mind that the benefits far outweigh the costs. Businesses in the life sciences industry who invest in an ERP solution can experience:
· Efficient traceability from production through distribution
· Timely financial reporting from R&D through commercialization
· Improved quality control with built-in checks and balances
· Maximized supply chain management and inventory visibility
· Increased data security with monitoring and authentication controls
· Unified warehouse and distribution management to support FDA Good Manufacturing Practices (GMP)
· Better revenue recognition to control costs
Navigate ERP Pricing with FRC
With so many factors to consider that can affect the overall cost, it’s important to work with a partner that will help guide you every step of the way. At Frank, Rimerman Consulting, we offer expert consulting services from system selection to implementation across the most popular ERP solutions including NetSuite and Sage Intacct. We work with providers to negotiate the best software package for your individual needs, and reengage as you grow.
With more than a decade of experience implementing ERP in the life sciences industry, we know what it takes to succeed in this space. Reach out to our life sciences team to start budgeting for your new ERP system.