This is how ERP pricing works. Minimal tech jargon, promise.

In the 21st Century, Enterprise Resource Planning (more affectionately ERP) soft-wares have become central to the effective management of businesses of all sizes. ERPs are a natural evolution of basic accounting soft-wares from 1987 (remember TurboCash) which in-turn had many humble roots in Lotus 123 launched in the mid-1980s. 

What marks ERPs from basic accounting suites is the sheer scale of ERPs. Where accounting software handles only the accounting aspect of the organization, ERPs, on the other hand, take care of all the other activities and processes in the organization. The following are some of the processes that are handled by your typical ERP:

• Financials Management
• Inventory Management
• Human Resources & Payroll
• Customer Relationship Management
• Sales Management
• Manufacturing & Supply Chain Management

All this control and efficiency does come with a price tag, this piece aims at breaking down the pricing structures (in general). ERP costs can be broadly broken down into:

• License Costs
  • Module Licence
  • User License
• Implementation Cost
  • Requirement gathering
  • Use Cases
  • Configuration
  • Customizations
  • Change Requests
  • Training
• Annual Maintenance & Support
  • Support (Can have different models)
  • Future Updates

Before we hit them one-by-one, here are a few terms that you should be aware of:

• Principal: The developer of the ERP for eg, Sage, Microsoft, SAP, Oracle, etc.
• Channel Partner (Vendor): Principals rarely work directly with the customer (unless the account is huge like that of the major manufacturer or an airline, etc). The products are sold by vendors called channel partners. 
• Name User License: License tied to the name/ID of a user, ie 5 Name users license means that the ERP will have 5 users with predefined roles.
• Concurrent User License: License that is tied to a maximum number of people who can use the system at any given point of time. For eg, 5 concurrent user license means that an ERP can as many numbers of registered users in the system, but at any point of time, only 5 will be able to log into the system, other users can log in once one/any of the 5 logs off. 
• Module License: License cost for that particular module. 

License Costs

ERPs generally have 2 license aspects, 1 for the modules and the other for users. The cost for the licenses will vary from product to product. Concurrent user licenses, in general, are more desirable as they come with flexibility and for modules, the focus has to be to avoid the bells and whistles and stick to modules that are needed, not wants. Overall the license costs will be 50% of the entire ERP implementation.

Implementation Costs

Implementation is generally carried out, almost always, by a channel partner (vendor). Your organization will work with the vendor team from start to finish. We have covered the entire process of ERP implementation in detail, you can read it here or view the video here. 

Broadly implementation covers:

• Requirement gathering: Series of interaction between the implementation team and your team to uncover and categorize the requirements.
• Use Cases generation: General use scenarios based on the discovered requirements.
• Configuration & Customisations: Setup and development of specific features for meeting the required specifications. It should be noted no ERP product will meet all your business needs right out of the box as each business processes are unique.
• Change Requests: It is normal for requirements to evolve during the implementation process. Depending on your equation with our implementation partner these change requests may be chargeable.
• Training: Training for your staff in the freshly deployed ERP system.

Annual Maintenance and support

The last but crucial aspect of ERP costing. Post-deployment the implementation is responsible for providing support for:

• Technical support
  • Onsite
  • Remote
  • Telephonic
• Staff Training for new induction or refresher courses for the staff.

The industry rule of thumb is 20% of the license cost but depending on the service level agreement between you and your implementation partner, the cost and services offered will vary. 

Conclusion

License costs, costs for implementation and your support requirements are the variables that decide the final cost of the implementation of a new cutting edge ERP. It should be noted that I have left out indirect costs such as hardware (server/local LAN infrastructure) and/or the need to hire specialist staff to manage certain new job openings that may open up with the deployment. 

If you like we have a much more detailed post and video about how you should proceed with ERP implementation. You can see the video from this link.

That being said, an experienced and accomplished implementation partner is crucial successful ERP implementation.

Evomatiq Business Solutions LLC is a boutique software solutions advisory based out of Dubai, UAE. Evomatiq excels in helping businesses understand the emergent requirements and match them with long term and scalable business solutions.