The 6 Deciding Factors of ERP Implementation Cost

ERP implementation“How much does an ERP system implementation cost?” This is a question that we get all the time. It’s a valid question, but unfortunately there is no simple answer as much as we wish there was. One rule of thumb that many people follow is that an ERP implementation will cost 100-250% of the software license itself, but that’s not always the case as the size of your company, customization needs, and other requirements will play into the final number. The best way to budget your project is to understand the 6 main factors that go into the overall cost of ERP implementation and what you can do to limit any extra expense.

1. System architecture

The way that a system is designed and built can impact your overall cost in a number of ways depending on what features and modules are available out-of-the-box, and what you may need to add on or customize to fill any gaps in the system.

2. How many users you’ll need to have set up in the system

In most instances, the more users you need, the more expensive your ERP system will be during initial implementation and as you continue to use the system. More users, especially those that require customizations or added functionality, can quickly drive up the price for larger businesses. One way to keep the cost of implementation down is to only buy enough users for those who will be using the software right away, better yet, some people may be able to share a user depending on their use of the system and the size of your business. You can always add more users later if necessary.

3. Whether you or an ERP consultant is doing the implementation

In some situations, especially in smaller organizations with a talented IT team, ERP implementation can be done in-house; this is especially true of smaller cloud ERP packages. In most cases though, you’re going to need some help from an outside ERP consulting team who can ensure everything is installed and tested correctly for maximum ROI. Using an ERP consultant can add on additional costs, but if you pick one with experience with the system you’ve chosen then it will be worth it in the end.

Related reading: 5 Questions to Ask Your ERP Consultant Before Buying a New ERP System

4. Level of customization and additional applications required

As mentioned above, the more customization and third party add-ons that you require the most the implementation will cost. You can keep this limited though with careful system selection and focusing on systems that were designed for your specific industry vertical as they will likely have out-of-the-box features you would otherwise have to have customized in a general ERP system.

5. Data migration

Moving the data from your current system or systems can add on additional cost to the project. Think carefully about whether you want to migrate that data and incur the cost. It’s easy to assume you need the data, but you may not if you think about factors such as the accuracy of the data in your current system, how often it is accessed or needed, whether or not it is needed for reports, etc.

6. Deployment

Making the choice between cloud vs on premise ERP is one of the biggest dilemmas faced by companies considering an ERP implementation and there is a lot of talk out there about which is cost effective. Each has its very own pricing structure. Usually cloud ERP systems are sold on a subscription basis and paid for per-user/month and you’re basically renting the system and this often includes maintenance and support fees (be sure to check). Premise systems generally carry one large upfront fee, making you the owner, and require annual vendor maintenance and support fees.

In the end, there is no answer as to which is more affordable and it boils down to what works for your company.  If you have a large budget with an IT staff that can handle ERP maintenance and a lengthy implementation, you may find more value in an on premise ERP system. If you are a smaller organization who wants the power of ERP without the complexity, you may see more value in cloud ERP.

Once you have a handle on all of this information, the next thing to focus on is ERP selection and implementation and there are a lot of mistakes you can make that can lead to additional costs. The white paper below sheds some light on some of the most common and costly mistakes so you can avoid them.

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