One of the most common questions when evaluating an ERP system is; how much does it cost? But the question should be how much does it REALLY cost? ERP costs are NOT only software costs there many costs that come along. The estimation and calculation of Total ERP software costs will be different for each company; each branch or industry have their own characteristics which will shape their business needs which will determine the ERP requirements from which the costs will be derived.
But this is not what you want to hear. You asked how much will it cost me? Let me try to answer this question. In asking other questions – bear with me…
First Question ; How Many Users will be Using the ERP system?
ERP vendors are earning their money from selling licenses (among other but we will get there soon). Let us say you will need 100 Users – it is a middle company. Each License costs $ 100. So: 100 x$100= $10,000, right? Is this the price? No. Each year you will pay an additional service price. Where I live and work – Switzerland it is something like 18% form the initial price of all users: 0.18 x 10,000 = $1800 each year. An estimated life span of an ERP is 10 years. So: $ 1800 x 10= $ 18,000 for the next 10 years. When you purchase more licenses, the initial price increases.
Why do you need to pay this amount each year? For customer support and for updates. But also, here there is a catch – you are paying for the development of the updates (the programming) but not for the action of the update – the time spent by a consultant to update your system. This is considered as service fee. Each ERP system will be updated each 3 years on a average. If you had not customized your ERP system – add some features that are not included in the standard package, then you will need 1-2 days updating. But if you decided to customize the price will rise. For example, where I work we need something like 10 consulting days of work in order to be able to upgrade. Each day costs $ 1000, so: 10 x $1000= $ 10,000 each 3 years.
Second Question – Which infrastructures you will need to Support the ERP Software?
Or in other words – what will you need to purchase extra, in order to enable to the ERP system to run in your organization. If the ERP system requires a windows server – then you will have the costs of purchasing and maintaining the server. But maybe you can deploy the system on an existing server? Maybe it will run on a Linux server and the hardware costs will be reduced but do you have the knowledge to maintain and support this server?
Which windows operating system do you use on your computers? You may have windows 7 installed on all computers but the ERP client (the program that allows the user to use the ERP system) is only windows 10 compatible. Gee, replace now all computers with Windows 10…. That’s a cost…
Third Question – What are Your Plans Regarding the ERP System?
Are you going to use the standard process of the ERP system or you would like to customize it? Here is the second profit center of the ERP companies – the consulting. It can reach up to $3000 a day (depends on the system). Which are the services that consultant may perform?
- Installing, Implementing, configuration and parameterizing the ERP system
- User training
- Customizations during implementation time
- Customization after implementation
Now, it is a sad truth but ERP vendors deliberately deliver poor standard so they can sell consulting services; forms and slips are poor in information and form (in other word they are ugly and you would not like to send them to your customer), reports are neglecting importation information and standard business functions are not delivered – so you would notice during implementation and will ask for it. And you will pay for it.
To summarized it all I will say that the costs of the ERP system bear in the background other hidden costs. In order to reach the true costs of the ERP system you must take a look at the bigger picture.
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