8 years ago we first published a series of posts entitled “Software That Matters.” It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system. Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.
Now eight years later, we thought it was time for an update, to reflect lessons learned since then. (We also did a 2015 update three years ago.) Much of what we wrote then remains every bit as true today. But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018. We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.
In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy. In other words, the Software That Matters.
Previously, in order to discuss pricing, we defined our so-called typical client as a firm in the $10 to $100 million (revenues) range. Most are engaged in either manufacturing, distribution or both. Of course, ERP can benefit anyone. Manufacturing and distribution just happen to be our particular areas of greatest expertise. Given our baseline, let’s take a look at typical costs.
Whenever we’re asked ‘What’s it cost?’ I’m always inclined to give an answer along the lines of ‘How many trees are there in a forest?’ Not to be facetious, but really, cost varies according to many factors, including the obvious (How many users? How many areas of the company do you want to tackle? How complex is your manufacturing process?)… as well as the less obvious (How many of the necessary implementation steps do you want your team to tackle instead of ours? How experienced or tech-savvy is your staff? How committed is the top management?)
Let’s take a stab at it anyways.
We’ve sold $50,000 systems and we’ve sold $500,000+ systems. The difference, generally, had to do with… the number of users; the scope of the initial phases of the project; the computer and business literacy levels of the users; the amount of customization required; and the depth of planning groundwork required to reformulate or re-design business processes. One other factor: How heavily will engineering be involved, with all its cascading layers of staff, resources, projects and plans? Add to that, how many people across how many different departments require training?
The list is longer than that, but the conclusion we’ve come to after many years is pretty simple: start small and discrete. We like to start with the base software and one or two key departmental deployment objectives. These are typically the areas of greatest pain or urgency. They usually become pretty self-evident during the discovery process at most companies. Mind you, it’s not always possible to go ‘small and discrete.’ Companies replacing an existing full-scale system may have little choice but to go Big Bang. It requires communication, planning and consensus between you and your provider.
It may surprise you to learn that today, within a certain range of dollars, pricing on most ERP systems for the SMB market is remarkably close from product to product. We know this because we represent several different systems, and are familiar with many others.
For a typical starting point, say 5 users, and a commitment to deploy ERP across one or two functional areas initially (say, financials and order fulfillment as examples), the cost difference across multiple different ERP choices might be only about 25%. Typically, a ‘basic’ 5-user ERP system with most of the expected accounting functionality (financial reporting, receivables, payables, order entry, purchasing and inventory control) and maybe some basic ‘kitting’ manufacturing capability (BOMs, Orders, Routes) might run around $20-30,000, give or take. That’s for the software.
With today’s ‘in the cloud’ solutions, configurations can be priced by user, by month, making the costs, at least initially, appear much lower. That decreases barriers to entry, though in the long run, it’s pretty much a marketing game that the big-name publishers feel destined to win. They sometimes lure in prospects with exceedingly low cost-per-user entry fees, but generally, the full functionality you want, spread over years, adds up either way.
Except of course, with cloud, the data often resides on “their” servers (or at least somewhere other than your own), thus increasing the cost and complexity of ever moving off that system – a fact publishers know and relish.
At any rate, all software publishers today add an annual maintenance plan fee for on premise software which typically runs about 16% to 20% additional. Cloud users have it built into their pricing, and so it’s basically amortized over time. These maintenance plans are usually ‘required’ by the vendor for the first year. They do not entitle users to free support or training or other services; rather they entitle you to all software upgrades (and maintenance releases, or ‘bug fixes’) released by the vendor during that year. They are renewable, optionally, on an annual basis.