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Calculating the True Cost of an ERP System Over 5 years

Ray Rebello | August 22, 2017

Trying to decide to replace an outdated legacy system with a modern ERP system is worth it – or not – is a decision all businesses frequently face.  Advancing technology, increasing competition, and educated consumers all foster the need for businesses to calculate their ERP True Costs and decide whether they should choose a modern system over a legacy one. Acumatica’s ERP TCO & ROI calculator can help determine not only what the true ERP system cost is but is also a tool for picking the right ERP system for you and your business.

You’ve probably heard by now that legacy systems may no longer be the best choice for your business and how a modern, cloud-based ERP system can benefit you and your company. However, no matter how much you hear about the security, scalability, adaptability, and mobility of these systems, you also hear about something else: the expense. How much will a modern ERP system cost? This question alone can cause businesses to continue to rely on their existing legacy system. But perhaps you should be asking, how much is maintaining my legacy system costing me?

Calculating the True Cost of an ERP System Over 5 years

We’ll answer this important question by defining the “True Cost” – what we like to call the ERP true costs – of an ERP system in this final post of our new three-post series we discuss how important it is to balance ROI and TCO. Previously we have discussed both ROI and TCO which are the two parts of the justification equation. Read the blogs posts on how to get a true ROI calculation and how to get a true total cost of ownership calculation. You may be surprised at how much a system can cost over 5 years. But, a new solution may provide enough benefits to deliver a ROI greater than the TCO, hence both need to be estimated.

What is true ERP system cost and why is it important?

At Acumatica, we are passionate about getting small-to-mid-size businesses (SMBs) to recognize how cloud-based ERP systems can transform their operations. We understand that deciding not to implement a modern ERP system limits your growth potential. To see how doing nothing is possibly negatively affecting your business, please take a moment and download a recent Aberdeen Whitepaper, The Cost of Doing Nothing: Why You Can’t Afford to Sit on an ERP Software Decision.

Businesses that are looking to upgrade an existing ERP or implement a cloud-based one may already recognize that cloud applications can deliver an impressive ERP return on investment (ROI). But they must also recognize that they need to calculate their Total Cost of Ownership (TCO) of their system to determine all costs associated with implementing a new system. TCO isn’t calculated by just the upfront and obvious costs such as hardware expenses, software license fees, IT staff, and initial implementation costs. It also includes hidden costs such as employee’s time and effort to implement the system, future system customizations, retraining, and upgrades to name a few.

The ERP ROI and ERP TCO, when calculated correctly, form the components of what we like to call the “true cost” – or ERP true costs – of implementing a typical, modern ERP system for SMBs. True cost is your ROI minus your TCO over five years.

True Cost = ROI – TCO

Because the 5 year TCO and ROI estimate are essential for making the right choice of ERP system, we came up with our own ERP TCO calculator to help you with your decision-making. While a similar type of calculator may be available through other vendors, our ERP TCO calculator gives you the opportunity to compare the offerings of all ERP systems, not just Acumatica’s. Plus, it is interactive and you can change the assumptions and variables to fit your unique situation. If you are struggling with concerns about implementing a new ERP system, the calculator can help ease your fears with facts.

Your ERP true costs, based on ROI and the information you provide for the ERP TCO calculator, are important; it gives you a clear picture of what to expect when you choose between maintaining your current system and purchasing a modern system.

Benefits of implementing a modern ERP system

The intent of the ERP TCO calculator is to ease your concerns about the expense of a modern ERP system and to give you the chance to look at the benefits of all cloud-based ERP systems.

Here are a few of the many benefits of a modern ERP system:

  • Adaptability to change business process to match a changing business
  • Increased productivity by reducing data entry into multiple systems
  • Streamlined processes by eliminating manual processes
  • Integrated front and back office procedures for a complete view of the company
  • Mobility to work anywhere, anytime or any device
  • Customization of dashboards and reports to provide information for better decisions
  • Collaboration with stakeholders outside your organization (supplies and customers)

And with SaaS there are two more:

  • Lower upfront costs with new deployment options such as SaaS ()
  • And the system will grow with you, at your pace.

The cost of doing business: letting go of legacy systems

Legacy systems have certain restrictions that can no longer be ignored. The maintenance costs alone can be 16% – 20% of the current list price of the software, which means you’re buying it again every five or six years; or worse yet, your system becomes discontinued and is no longer supported. Constant IT staff and support needs, aging hardware, and lack of mobility hinder your potential to grow your business.

Is the idea of implementing a modern ERP system becoming more feasible and less overwhelming? Understanding ERP true costs through ERP ROI and TCO will help you with this decision. Use our free ERP TCO calculator to assist you. Please also feel free to contact us directly with any questions you may have about the true cost of a modern ERP system.

Try the ERP TCO Calculator

Ray Rebello

Director of Product Marketing at Acumatica

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