The Enterprise Resource Planning (ERP) market is large, very competitive and complex. This article discusses some considerations and options available for small and medium businesses.
Many vendors offer stand-alone applications or suites of software so it can be difficult to compare one vendor against another. Many ERP software vendors offer solutions targeted to specific industries while others offer a core suite of financials, sales and inventory management but leverage their third-party ecosystem to provide industry-specific solutions.
Buying ERP Software
When comparing prices or obtaining quotations, many ERP vendors sell through a sales channel of value-added resellers (VARs.) It is their job to work with you to understand what you are trying to achieve with an ERP system and, if you want they will help you implement it.
When preparing a quote for you most vendors will ask about the features or functions you need, the industry you are in and the number of people who will be using the ERP software. Most ERP vendors are willing to provide you with a no obligation price quote with the features and functions your business needs. Other considerations that affect pricing include deciding whether you want an On-Premises, a Software as a Service (SaaS), or a hosted ERP solution.
One mistake many businesses make when budgeting the cost of ERP solutions is focusing only on the licenses costs. However, four other factors should be considered.
Other Factors
Depending on the type of solution you choose you may need to consider maintenance fees. These are annual fees the ERP software vendor charges to provide you access to things like upgrades and/or product updates. A general rule is these will run you 18% of the list price of the software.
Another factor is that you may need to purchase and maintain new server(s), workstations and a database engine (most commonly Microsoft SQL Server.) All of these have their own, separate licensing costs. These are additional costs associated with implementing ERP software solutions.
Implementation services are a large unknown factor when budgeting for an ERP solution. These services include the scope definition, requirements analysis, installation, configuration, data migration, reporting, testing and documentation. This is something you can do yourself but it will take much longer to implement and much longer to see the benefits because you are learning the software while implementing it in the time you have available within your regular job.
Education and training is an area where it is easy to cut your budget but doing so has a significant impact on your ability to see the benefits from your investment. Consider this: if your people don’t know how to use the software, how effective and how efficient will they be? Would you take your car to a mechanic who has only basic training?
If your people don’t know how to use the software, how effective and how efficient will they be?
Calculating your Total Investment
All of these factors affect both the size of your investment but also your ability to see real results from the investment. Without discussing with the vendor your specific needs and goals you can create only a rough estimate of the cost of implementing ERP software. Many vendors estimate that the minimum investment in services for a successful ERP implementation is a one-to-one ratio with the license cost. So, if the list price of the software is $1,000 you should budget an additional $1,000 for services and other fees.
Deployment Options
There are three basic options for deploying your new ERP software. One is On-Premises. A second is Hosted, and a third is Software as a Service (SaaS.)
On-Premises is the traditional deployment model where the software is purchased by your company, installed on your servers or infrastructure and maintained by you.
Hosted is a model where you usually buy the software but pay someone else to operate the servers you use to operate the software.
Depending on your hosting agreement you may or may not be responsible for updating and maintaining your ERP software and servers.
Software as a Service, also referred to as SaaS, is in essence a rental model where you pay a monthly or annual fee to use the software. There is usually no initial investment required. Under this model someone else provides the infrastructure and they are responsible for updating the software and keeping the system running for you. It’s like electricity: you pay for what you use.
Who Owns the Data
When you choose On-Premises as your deployment option the answer is you but what about the other options?
Most vendors will say you own the data. That’s great in theory but if you want a copy of your data what is the in format in which will it be provided? Is that format usable? What is the process of obtaining your data?
Do You Need Better Software?
If you think you need better software for your business, contact us for a free consultation. Flexxus specializes in making your ERP software sing or getting the most value from software you already own.
