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.
More on ERP Costs (How Much, Part Two)
We earlier noted an entry point price of about $20-30,000 for a complete financial and rather modest manufacturing (or distribution) software suite. That’s for about 5 users. Figure roughly $4,000 for each additional user, and you’ll have a pretty valid estimate of software costs. Thus, at 10 users, figure about $50,000. At 20, you’re in the $75,000+ range. Pricing diverges as user counts increase, so it’s not a straight line calculation, but these will get you in the ball park. Again, that’s for software, and frankly, your cost depends on too many individual details to parse perfectly here. Much depends on the extensive of functionality, and the number of users, you choose to buy.
In the short run, cloud purchases cost you less; in the long run, compared to on-premise software installed at your site, the price differential can narrow considerably. You need to investigate the pros and cons of both with a trusted partner, and look at five-year TCO (total cost of ownership) scenarios going both ways.
With this rough estimate of software costs, the other shoe now drops: services.
We’re prejudiced, admittedly, but our view is that the best software in the world is fairly useless unless it’s properly, carefully and methodically deployed. The truth is, ERP deployment is complex, difficult, time consuming, labor intensive, and generally not fun. (Although we once had a client tell us “You guys make ERP fun!” That’s the first time we’d heard that one.)
Deployment costs (i.e., services) are more difficult to estimate, as truly, no two clients or deployments are the same. Very broadly speaking, a fair range of cost estimates runs from one to two times software costs – but it can run a lot more. There’s a lot of analysis, setup, configuration, data transfer and planning time required in all system deployments. These are more or less ‘fixed’ costs, so when they’re spread over fewer users, their actual dollar value forces the estimate to closer to two times software; whereas when spread across more users, these costs represent a smaller percent of the overall deployment costs, and thus a final figure closer to one or maybe 1.5 times software costs. Again, all estimates are just that: estimates. Your mileage may vary. Software customizations will add additional cost – sometimes by a lot.
And for sure, we always say this: We cannot quote what we do not know. We live and die by those words. Any experienced ERP implementer will tell you the same.
So, to wrap up: If you’re looking to implement ERP – properly – for about 5 or so users, complete with financials and some very basic inventory control, manufacturing or distribution functionality, you’re looking at a project that will probably run about $75,000, spread over several months, again depending on any number of factors. At 10 users, you won’t be double that range, but you’ll probably be over $100,000, give or take. Less complex deployments will cost less; more complexity, and other functionality not listed here (which you can often add later) will increase costs. To be fair, it’s not unusual for costs to go double the above estimates. The important thing is to know what it’s going to be before you even get started. At the least, you can build your planning budgets around these figures, and in turn, use those figures to determine just how big a bite of the apple you’re willing to take.
Which brings us back around to one of our long-time, key implementation tenets: Whenever possible, start small and discrete. We’ll have more to say about that next. Stay tuned…