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ERP Price Structures Explained: Factors That Affect Your Total Cost

Your ERP price may vary depending on your scope of implementation, number of employees, customizations, and deployment method (on-premise or in the cloud). Let’s take a closer look at the factors that can affect ERP pricing—and the unique pricing model that can dramatically reduce your costs.

How Scope of Implementation Affects ERP Price

No two ERP systems are created exactly alike—and no two implementations go exactly the same way. Chances are, your company will need a slightly different mix of applications from what your peers have installed. Most vendors will allow you to choose which specific modules you want to install and then bill you accordingly. If you begin with a basic implementation that provides core ERP functionality, you’ll pay less than for a full-blown platform. Fair enough, right?

But keep in mind that as your business grows, your needs will expand, too. Check in with any potential vendor about the cost of purchasing and installing the additional modules that you anticipate needing a year or two down the road. This will give you a far more realistic view of your total ERP price than simply looking at your initial investment.

User-Based ERP Pricing

Most ERP vendors will assess you an initial fee based on your number of users and then charge you more for each new user you add. The more your company grows, the higher your ERP cost will climb. So, when you’re trying to estimate the total cost of a new system, you’ll need to project how many employees will be using the system months or years down the road. Factor in the cost of buying an ERP license for each employee.

Some vendors also offer “seat licenses,” by which you pay for a certain number of users to have access to the system concurrently. For example, if you have 30 employees who will need to access the system but you estimate that fewer than 20 of them will be on the system during peak hours of usage, then you might purchase 20 seat licenses. This can be a good way of keeping your ERP license fees down—but it’s also risky. If all 20 licenses are in use, the 21st person who tries to log on will be blocked from doing so.

Factoring Customizations into Your ERP Price

The cheapest way to go live with an ERP system is to implement it right off the shelf. But most companies require some customizations to make their ERP system support their unique business processes. Customization typically involves paying the vendor’s technical consultants to make changes to the system. Extensive customizations can drive up your ERP cost significantly.

Keep in mind that any customizations must be designed in a way that they will continue to work when the next release of the software is installed. Otherwise, you’ll either have to rewrite the customizations (which is often a long and painful process) or simply skip new upgrades and miss out on the new functionality and security features they provide.

At this point, you may be wondering whether cloud ERP can save you money. It can—but you have to know what you’re looking for.