ERP COSTS, BUDGETS AND PRICE NEGOTIATION
How much should you expect to spend on ERP software? Others will say it depends on the system and what you want to do with it but there are some general guidelines that will help you identify approximately what you should expect to spend on a new ERP system. Your investment will increase as you move from entry level accounting to SMB, SME, and Tier One ERP offerings. Additionally, the services required to implement the software will also increase dramatically. Further, you can probably get discounts up to 50% off in some cases if you know the tricks of the trade.
It’s vital that you understand that most ERP vendors have very different pricing models. For example, some ERP products are priced based on named users and others are priced based on concurrent users (users in the system at the same time). Further, some user licenses are discounted for limited tasks such as shop floor data entry. Further, most ERP vendors are pushing subscriptions these days as opposed to traditional purchase pricing. Subscriptions are very different in that they include the license for the software and user licenses rolled together into a monthly or annual price which includes the maintenance and support costs.
Traditional sales of perpetual licenses where you buy and own the software are still available from some vendors and often require or offer optional maintenance and support plans (sometimes called clientcare or businesscare). These average about 20% of the original software list price so if the software cost $100,000 to buy – you’ll probably spend about $20,000 annually on the maintenance and support plan to ensure that you have access to new versions and support. And you kind of have to stay on plan for the maintenance and support. ERP vendors will ding you pretty hard if you don’t renew charging you penalties for reinstatement. Further, off-plan customers are pretty much on an island – they cannot purchase any additional modules or users and they’re out of luck if there’s a problem with the software that requires a source code change as there are very few options outside of getting back on plan or paying a licensed developer to fix the problem.
Subscriptions are increasingly popular these days because they’re good for the publisher and the customer alike – especially in a hosted deployment. This is no different really than Microsoft’s new approach with Office365 where you don’t buy the software – you simply rent it for a monthly fee and it automatically updates.
Subscription plans for cloud and SaaS applications vary dramatically. For example, midmarket cloud ERP and accounting products typically charge for a base subscription for licensing the software in various configurations. Depending on what you need, the subscription price typically starts at around $1,000/month for the basic configuration up $10,000 per month for larger, enterprise cloud deployments. These prices typically don’t include users which are around $100 per month each. So what does this look like? A 10 user midmarket cloud accounting or ERP system would cost you about $22,000 annually on subscription. That’s an average of $2,200 per user annually (just under $185/user/month). By comparison, a similar 10-user midmarket ERP purchase (with similar bells and whistles) works out to about $27,000 for the first year and about $15,000 for future years. The purchased, premise application would cost you more upfront but less in the long-run as the recurring costs are considerably lower. But you also have to consider the intangibles that go along with cloud applications – reduced IT costs, no need for operating system or database licensing, reduced hardware costs, and faster deployment.
And then there’s services which can be even more confusing than the pricing. Do NOT try to self-implement SMB or SME or Tier One ERP products – you are not saving money. You will only cause problems that will cost you more in the end. Pretend that the service costs are non-negotiable and simply let the experts do what they need to do to implement your software.
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