Manufacturers looking to catapult their operations into the digital era are always eager to ask us, “How much does an ERP system cost?” And for good reason. ERP systems overhaul and centralize your entire organization. It’s a daunting investment that requires work from every employee; from your ERP project manager to your shop floor technician who needs to learn new workflows.
However, one of the biggest benefits of ERP systems is their ability to be custom-tailored to your business. The cost of an ERP system, then, depends on the size of your business, your specific goals and needs, and the ERP solution you choose.
In this article, we’ll make budgeting for your new ERP system easy by offering factors to consider, average figures, and our experts’ experiences regarding ERP pricing.
How Much Does an ERP System Cost?
The cost of an ERP system includes many factors specific to your business, so the ERP software that you choose must be the right fit for your business.
For example, in our SAP vs Infor article, we explain that both ERP solutions are high-quality, but the sheer cost of SAP makes it a poor option for medium-sized businesses. It’s simply not made for them; it’s made for massive companies like Walmart and Amazon.
However, if you’re looking for quick figures, a 2022 report by Software Path surveyed over 1,300 ERP selection projects. Their results show that the average budget per user for ERP systems is $9,000. They also determined that only 26% of employees at these companies actively used the ERP system.
A report by Folio3 offers an average cost of ERP implementation ranging from $24,000 to $6 million or more. Remember, this is an average, which is why the range is so huge. These figures tell us nothing about the size or needs of the businesses included in the studies.
So let’s break it down by what you can expect to pay for during an ERP implementation.
Types of ERP Costs
When budgeting for a new or upgraded ERP system, you’ll run into a predictable series of costs from initial costs to ongoing costs to indirect costs.
Initial Costs
These upfront costs will require some shopping around to get hard figures, but you can expect to pay:
- ERP software licensing fees
- ERP hardware costs
- ERP implementation fees
In other words, you’ll pay to license the software, which can be a one-time fee or, more likely, a subscription fee. Then, you may need to upgrade your hardware to accommodate the ERP system. And finally, you’ll be working with an ERP consultant to ensure an effective and timely implementation.
Monthly Costs for Ongoing Support
ERP implementation isn’t a one-and-done deal. In fact, you don’t want it to be. That’s because the goal of an ERP system is to collect data so your business can continually optimize and improve. An ERP system will help your business grow, so the system itself will need to scale with your expanding organization as well.
Ongoing costs include:
- Maintenance, upgrades, and support from your ERP consultant
- Subscription fees for cloud-based ERP software
- Training and development as your business grows
Indirect Costs
When budgeting for an ERP system, it’s important to include indirect costs. These are costs that aren’t paid to a vendor or consultant. Instead, they’re baked in to the process.
Indirect costs include:
- Downtime during implementation
- Productivity loss during implementation
- Integration with existing systems
- Customization costs which vary depending on how much customization your business needs
- Ongoing training for new team members
What Factors Influence ERP Costs?
As you can tell by the broad range of average costs, there are many factors that can impact the price of your ERP implementation. Each company is in a unique position, so it’s important to consider each one of these factors and how they apply to your manufacturing business.
Company Size
At Godlan, we help small to medium-sized manufacturing businesses implement the best ERP software solutions for their needs. Typically, these companies may spend between $150,000 to $850,000 for an end-to-end ERP solution. You can expect to receive essential ERP modules and basic to intermediate customization in this ERP price range.
Large enterprises come with complex requirements and need extensive customization and advanced integrations. They can expect to spend $1 million to $10 million on ERP implementation.
Industry Focus
That’s right; the industry you’re in can affect the cost of an ERP implementation. This can range from discrete to process manufacturers, from automotive to pharmaceutical, each industry comes with its unique regulatory bodies and production systems.
Industry focus can affect costs as some industries might have a greater need for specific modules like supply chain management, production capacity planning, and quality control.
Furthermore, specialized industries like healthcare or finance may need custom features to keep them in compliance and more robust cybersecurity measures.
Level of Customization and Integration
Again, this is often industry-dependent, but the level of customization an organization needs can significantly affect the cost of an ERP implementation. ERP software customization as well as developing solutions to seamlessly integrate any existing software with your new ERP platform requires advanced development and consulting. For example, we often see accounting departments insist on continuing with their existing software and therefore requiring custom integration. However, in 2022, QuickBooks was the software most often replaced by ERP accounting solutions.
The point is that whenever you have to pull in additional experts like software developers, fees go up.
ERP Pricing Models
ERP pricing varies drastically by vendor, and you can expect to see two main pricing models: perpetual licensing and subscription-based licensing.
Perpetual licensing involves a one-time upfront payment for the software license, plus additional costs for maintenance and support. This is a typical option for on-premise ERP systems and large organizations that can cover the high upfront cost.
Subscription pricing is much more common, especially for cloud-based ERP solutions. You can expect to pay for the software monthly or annually (which can come with a discount). The pro is that it lowers your upfront costs. The con is that over time, monthly or annual fees can add up. In other words, be sure your business can cover the costs month-over-month.
ERP Implementation Timeline
Indirect costs of ERP implementation like downtime and productivity loss are amplified by the length of time it takes to implement your ERP system. Unforeseen bumps in the road can also result in additional consulting fees.
As the old adage goes, if you fail to plan, you plan to fail. You can stay on track and budget during ERP implementation by spending more time on the planning phase.
Extras
No matter what ERP system you choose, it will come with a core set of functionalities. Accounting and customer resource management (CRM) are common modules included out-of-the-box.
However, you may want or need additional modules that could increase the cost. You might want to upgrade your sales and operations planning (S&OP) module or include product lifecycle management (PLM) software, for example.
It’s easy to feel like a kid in a candy store when looking at everything an ERP system has to offer, but be sure to carefully evaluate which modules are essential and which you can skip for now.
Training and Support
We can’t emphasize enough how important proper training is to keeping ERP costs down. Complex systems can require longer training periods that not only affect current employees but also new employees in the future. On top of that, ongoing support and monthly maintenance fees must be considered when budgeting for an ERP platform.
How to Budget for ERP Costs
Now that you understand the factors and fees that come with ERP implementation, it’s time to start creating your budget. Here’s how to budget for ERP implementation costs.
Define Your Goals
Based on the factors about, what specific needs will your new ERP system address? Select the modules your manufacturing business will require, such as inventory management, financial management, human resources, shop floor management, etc. Break your list down into “must haves” and “nice to haves” in case you find some flexibility in your budget later.
Which Deployment Model Do You Need?
By deployment model, we mean cloud-based ERP, on-premise ERP, or a hybrid solution. While we’ve worked with manufacturers across all deployment models, most manufacturers choose cloud-based ERP systems. Manufacturers with high security needs tend to opt for on-premise solutions.
Estimate Software Costs
For on-premise systems, reach out to top vendors to find out what their one-time licensing fee is. For cloud-based systems, ask vendors what their monthly subscription fees are and estimate those costs over a period of 3-5 years.
Then, determine what additional modules will cost and add those into the equation.
ERP Implementation Costs
ERP consultants like Godlan have a wealth of experience streamlining EPR implementation. So while you face additional fees associated with consulting, you save money in the long run because you’ll have far fewer fires to put out.
In addition to hiring consultants, you will need to factor in the costs of customizing your ERP software to match your business processes.
Next, estimate the costs associated with data migration. Data migration is the process of transferring your current and historical data from your old systems to your new system.
Finally, your consultant can help you determine the cost of thorough testing before your system goes live.
Updating Infrastructure for On-Premise Deployment
If you choose on-premise or hybrid deployment, you’ll face the upfront costs of upgrading your infrastructure and hardware to support the ERP system. This might include network and server upgrades.
Cloud-based ERP systems will need a strong and reliable internet connection, and in some cases, that means upgrading to a faster internet plan.
Change Management and Training
Change management initiatives should be implemented early and often. The fact is that employees get stuck in their ways and may be resistant to change – especially a change of this magnitude. In addition to the costs associated with training current and new employees, allocate funds for lunch-and-learns and other events that help increase employee buy-in.
Ongoing Support
Ask your consultants what it will cost per month for maintenance, upgrades, and ongoing support. Budget for annual maintenance contracts from your consultants, as well as hiring or upskilling IT staff to manage and maintain the ERP system.
Example ERP Costs and Budget Breakdown
An example of a budget that includes initial costs and annual costs could look like this:
- Initial costs
- Software licensing: $100,000
- Implementation services: $150,000
- Customization: $50,000
- Data migration: $20,000
- Hardware: $30,000
- Training: $10,000
- Annual ongoing costs
- Maintenance and support: $30,000
- Subscription fees: $60,000
- IT staff: $50,000
You can use this example to calculate ROI on ERP implementation over the next several years to ensure it pays off.
How to Reduce ERP Costs
With over 40 years of experience helping medium-sized manufacturing businesses implement ERP systems, our experts at Godlan have seen it all. We’re masters of adhering to our clients’ budgets by minimizing costs and making sure implementation goes to plan. While hiccups may happen, they don’t need to be costly disasters.
Here are some proven tips for reducing ERP implementation costs.
Select the Best Vendor for You
There is no “best” ERP vendor overall. All ERP vendors have their strengths and weaknesses. Your goal is to find the best fit for your business. When selecting an ERP vendor, investigate whether or not they have worked with businesses in your industry in the past, and what size business they best serve.
For example, at Godlan, we choose to work with Infor SyteLine CloudSuite ERP because they make easy-to-use ERP software for small to medium-sized manufacturers with a high level of customability. This means we can help our clients get up and running quickly with minimal customization, but can scale with them as they grow, too.
Ask About Phased Implementation
You may be able to deploy your new ERP system in phases rather than all at once. This approach allows you to control your budget and reduce the risk of major disruptions. It also address your biggest priorities first rather than trying to change your whole business at the same time. Phased implementation helps you spread out costs overtime, test features and functions before you add more, and get off the ground with essential modules right away.
Start with Out-of-the-Box Solutions
Select a vendor that has most of what you need right out of the box. For example, Infor SyteLine offers solutions tailored to medium-sized manufacturers, so they have what many businesses need without costly add-ons.
See how well your team can operate using the standard features of the ERP system and keep notes on what you want to implement based on that. As fun as customizations can be, they can also be costly and complex. Make sure that any customizations you take on are essential and pay you in dividends.
Negotiation
Believe it or not, you may be able to negotiate with vendors and consultants. Some vendors offer discounts for multi-year contracts or volume purchases.
Train In-House Trainers
Called the “train-the-trainer” approach, you can reduce training costs by selecting a few key users and training them extensively on their side of the system. Then utilize them to train their staff. This will lower consulting and training program costs via the vendor.
So, How Much Will an ERP System Cost You?
Still unsure if a new ERP system is worth the investment? At Godlan, we understand that implementing an ERP system is a huge undertaking, but a necessary one. Let us walk your team through the process, identify areas of cost savings, and create a roadmap for successful ERP implementation. Schedule a consultation with Godlan today.
