At Acumatica, we strongly urge midsize businesses to investigate the benefits of a modern ERP system and take advantage of technology that continues its unrelenting progress. Our ERP TCO calculator is just the tool to research ERP options and weigh the costs. Together, the Total Cost of Ownership (TCO) and the Return on Investment (ROI) measured by our calculator will offer the “True Cost” of implementing a new system and provide data to compare ERP vendors.
Cloud ERP systems, unlike legacy systems, take care of your business management needs by giving you a single version of the truth in real time. They automate your processes, give you mobility, and adapt to your specific requirements – all of which benefits the customer. These benefits, however, come with a price; businesses must justify the expense and understand the cost of maintaining their legacy ERP system, before making such a large expenditure.
The justification comes in the form of calculating the ERP Total Cost of Ownership (ERP TCO) and includes determining the Return on Investment (ROI). Acumatica’s ERP TCO calculator assists midsize businesses find the true costs of a modern ERP system.
This is the second of three blogs on the subject of the True Cost of an ERP System. In this blog, we will deal with how to accurately develop the total cost of ownership (TCO). In the first blog, we discussed how to estimate the ERP ROI. Read about how to get a true ERP ROI calculation.
ERP total cost of ownership
The ERP TCO is calculated by always using the purchase price and implementation costs of the ERP system, but must also include the operating costs for the 5 to 10 years the system will be in production.
The upfront costs include hardware expenses, software license fees, and IT staff and for installation of the overall system. The actual implementation of the software business process, user training, and customization all round out the initial costs.
As easy as it is to consider these clear-cut costs, there are concealed expenses to consider. We use the illustration of an iceberg to show how these expenses are not apparent to the buyer. The tip of an iceberg juts above the water but a massive body of ice hides underneath, a veritable obstacle if undetected. The underwater body of ice is indicative of hidden expenses.
For this reason, we break down the cost of an ERP system into four components so that all costs are taken into account; the top two are the clear costs and the bottom two are the hidden costs businesses may fail to include in their budget for the life cycle of the new system:
- Software fees
- Implementation people costs
- On-going infrastructure expense
- On-going people cost
To explain further, hidden costs of an ERP implementation process include the amount of time existing employees will need to spend on the implementation while continuing to perform their regular duties. Additional staff to help with the new procedures may be needed. A senior executive (or executives) must sponsor the project, a time-consuming endeavor; their role is crucial in keeping the implementation on track and the team excited throughout the process. Add to all of this infrastructure expenses, retraining of employees, creating a budget for future customizations, software upgrades, and even more training if you desire utilize the new system fully as your business evolves.
For on-premise systems TCO, the ongoing maintenance fees can run you about 18% of the current list price of the software every year. When added up, with price increases, you are essentially buying the system again every five years.
It’s a lot to think about. But it’s also important that you take all costs into account when justifying a new ERP system and balancing them out against the increased ROI you receive.
Acumatica’s ERP TCO calculator
Acumatica’s ERP TCO calculator is the tool to use when calculating your ERP TCO along with your ERP ROI; it gives you a clear picture of the differences in costs associated with legacy and modern systems. Exploring your possible ROI and your TCO shouldn’t be complicated. Our ERP TCO calculator simplifies the process for you.
For your possible ROI, an interactive table will give you the potential financial savings in the areas of profitability, operating costs, administration costs, and inventory levels.
You’ll receive a full, printable summary based on your information, which gives you an estimate to start your justification process. The calculator is also a means to compare the different ERP systems on the market.
Get your true ERP total cost of ownership calculation
We know this is a big decision. But our ERP TCO calculator is meant to take the fear out of the justification process and to shed light on the fact that maintaining a legacy system may cost you more in the long run. Are you ready to start the process? Try out our free, easy-to-use, and private calculator.
Ultimately, every business’ needs are different and your results are unique to your organization. With this in mind, we are available to discuss your results and to assist you with the next steps of the process.