Posted by admin at September 11, 2015 in ERP Software
As I meet with small businesses considering implementing of an Enterprise Resource Planning (ERP) system, one of the first questions typically asked is, “How much will an ERP implementation cost?”
Whilst the real cost of ERP can only be gauged over 5 to 10 years, this discussion focuses on the cash flow spike a small business has to face at change-over or upgrade time. Even if a business moves to a service or subscription model, there is still the cost of implementation and modifications.
However asking how much a typical implementation will cost is still a reasonable question as implementing an enterprise-wide business system with integrated financials is a significant investment, and although there are many variables to take into account along the way, an experienced solution provider such as Horizon2Technologies has a good idea of what to expect.
Although our company since its inception has primarily implemented JIWA Financials, there are commonalities when it comes to pricing. The following guidelines apply to most small to medium-sized companies looking to implement any ERP system.
Company type and the number of users – All companies have varying requirements starting with the number of system users and then the relevant modules that will be required to run their business processes. A medium-sized manufacturing company will require more complexity than a similarly sized professional services company.
Since most ERP systems are priced according to the number of concurrent users and the level of access each of these users will require from the system, companies should expect to pay around A$2,000 - A$4,000 per concurrent user for a manufacturing or complex distribution company and around A$1,000 to $1,500 per concurrent user for a professional services or light distribution company. Additional licenses for “light” users (users only requiring limited access to the system) are usually priced at around a 75% discount of a standard user.
Third-party software – Third-party software required to extend the ERP software or enhance it with applications tailored for a specific industry or specific business process can add significant cost especially where the initial accounting software is restricted in functionality to be little more than an electronic cash-book with basic reporting. Third-party add-ons typically account for 35% to 75% of the overall software cost but may end up 200 – 300% of the software investment.
ERP Implementation cost
There are many factors that influence the actual cost of implementation: the company’s industry, the size of the company, the anticipated transaction volume, scope and complexity of the implementation, the number of third-party integrations, the number of OEM module modifications are to name a few. Most implementation costs are calculated based on a ratio of software to services.
The more the company implementing the ERP system can handle on its own without relying on external vendors, the closer the software-to-services ratio can get to 1 to 1. For most companies of average size and complexity, however, it is more common to see software to services ratios of 1 to 1.25 up to 1 to 2.0.
Customizations – Very few ERP systems can be installed and used “out-of-the-box.” Therefore, most companies will require some amount of customization to integrate the ERP software into their business processes. The amount of programming, testing, and training is directly related to the size and scope of the effort and fees are usually quoted for in terms of the number of professional services days.
For a typical mid-sized company where the OEM is a multi-national company, the total software and services cost will range between A$150,000 and A$300,000. Where the vendor is a long established, reputable local company with lesser overheads than a multi-national, the investment will range from A$60,000 to A$90,000 which is a substantial saving so it does pay to shop around.
Hardware, infrastructure and Software Operating System and Database software costs such as Microsoft SQL need also to be taken into account, and these estimates depend on whether a Cloud or Subscription based model is chosen or an on-premise implementation rather than a hosted or subscription-based solution. An allowance for a medium size company for an on-premise solution will range from A$15,000 to A$30,000 and for a Cloud-based subscription service a range of A$600 to A$800 per month per group of 20 users.
This discussion covers quite a price range, however it should assist small to medium sized companies commencing the evaluation process to understand the factors that influence their proposed ERP implementation cost. Moreover, it should alert companies to carefully evaluate estimates that fall significantly below or above the ranges discussed here to ensure there are no hidden costs and that the company is receiving the best business value while they seek to minimize cost and risk. ERP Implementation Cost - understand it.
Horizon2Technologies is a leading Australian Reseller of Management and Marketing Software for Small Businesses in Australia. Enterprise Resource Planning (ERP) Software; Accounting Software; Mobile Marketing Apps; Project Management Software and Business Process Digitalization Software.