How much does it cost to implement an ERP system?
How much does it cost to implement an ERP system? Unsurprisingly, cost is determined by the size of your business and the complexity of your needs. You’ll find that precise costs are difficult to pin down without precise planning and knowledge of your business needs, so let’s try to dig a little deeper.
As a rough indication, in a 2020 ERP report, the average cost per user in the US was around $8,000. It is common, however, for additional costs to apply for licensing and customisations (and other features) so this figure can vary quite dramatically.
Ultimately, the study found that the average cost of a full implementation was anything between $150,000 and $750,000 for a mid-sized US-based business – but even this is an approximation. Don’t be surprised to find that costs grow dramatically if you have a large team of potential users or you require substantial customisation of the system defaults. Of course, price will also change depending on the product you choose.
Key budget considerations
Once you’ve accepted the need for a new ERP system, you will need to review your current processes and set a budget. Most ERP implementations come with a set of components that can affect cost. Typically these are:
• Software licensing
• On-site servers v cloud
• Data conversion from previous systems
• User training
• Consulting and support
One of the biggest ways to determine cost is to work out which of these components you need in order for the implementation to be successful. Ask yourself how many people need access to the system and therefore how many licenses you’ll need. You might also need to transfer considerable data into your new system. At the same time, you might require the help of an expert consulting team to get the product up and running. It is not uncommon to require all of these components, so be realistic about costs from the start and it will prevent surprises as the project progresses.
How to justify the cost of your ERP software
If many of the above components are necessary to safeguard the success of your project, the best plan of attack might be to justify your investment to the decision makers.
Once you can demonstrate that you will get considerable ROI, you can feel confident that the initial costs are worthwhile.
Just some of the benefits of a new system include better data capture, fewer human errors, higher productivity, less waste and reduced labour costs. When all of this is added together, you can expect a healthier bottom line and a more robust business in the face of growing competition.
Therefore, while the cost of a new system is considerable, you should always expect considerable benefits once it is in place.
A good way to justify the cost of ERP is to carefully consider where your business will benefit most from implementing it. Does your business really need ERP modules in CRM for example? Or does the cost of ERP HR management really come with substantial benefits on what you already have?
On-premise vs. cloud ERP
One important factor in determining cost is in deciding whether on-premise or cloud-based ERP suits your business needs.
As time goes on, more businesses are choosing cloud for this reason.
Cloud allows you to implement and maintain your system without the need for a large IT team, as many of the features can be handled without the need for on-site hardware or internal expertise.
Therefore, choosing cloud will often allow businesses without the necessary experts on-site to run a best-in-class system with minimal disruption.
It is of course worth noting that if your business does possess the necessary expertise and on-site space for bulky servers, then choosing on-premise could lead to savings on cloud-based subscriptions longer term.
Each business is different.
Avoid being oversold
It’s difficult to reduce costs in areas where you genuinely need to invest. However, one of the most effective ways to save is in determining what features you do not need.
Many businesses are oversold or simply want to improve across all departments. While this is understandable, there will be some areas where the considerable investment cannot be justified long-term.
Try to be objective with what initial outlays will result in the biggest returns. Pumping more money into your system is not always the best way to go. Far better to ensure the fundamentals are in place that investing heavily in small wins.
Compile your budget
Now you have everything you need to put together a realistic budget and determine the true cost of your ERP implementation. You’ve considered the system you need but also the features and modules that are most beneficial. With all of this in mind, you should be able to set a budget that will minimize nasty surprises while making savings in the areas where you would initially have overspent.
How much does it cost to implement an ERP system: next steps
Would you like to consider how much it costs to implement an ERP system in more detail? Our ERP consultants are on hand to help. Get in touch here for a quick chat.