What is the True Cost to Own a New ERP (Hint: It’s Not What You Think)
Pricing out new software seems straightforward, but the true cost of ownership isn’t always obvious. There are costs around implementing a new ERP system that may not be in your original contract, but buyer beware: You may end up paying for them anyway.
To avoid getting taken unaware, go through the following list with potential vendors to find out how they handle each of these areas.
Hardware: Do your existing computers support new software or will you need to upgrade? This includes specialty hardware like new credit card readers, GPS trackers, and mobile devices.
Data Storage: Vendors usually charge a monthly fee for hosting customer data. If you plan on using your own server, factor in operational costs like electricity, anti-virus software, disaster recovery plans, and employee hours.
Data Cleanup: Someone needs to update all your item and customer records to fit the new system. Whether a vendor, consultant, or employee does the work, budget time and money for data cleanup.
Software Licenses: Enterprise software has two pricing models. A perpetual license where you pay a one-time lump-sum and then “own” that version of the software. There are typically additional fees to access new features and customer support. A subscription license is where you pay a monthly fee to access the most current software version. New features and customer support are typically included in the monthly fee.
Customizations: If you need a feature, report, or interface that’s not available in the core platform, you may need the vendor or a contractor to develop it. Have vendors explain how they handle and bill for customizations to their platform.
Implementation Help: If you hit a snag during implementation, you may need extra help from your vendor to work through it. Ask about the pricing policy for additional training or assistance, just in case.
Ongoing Support: Ask about the limits on the support contract. Does it cost extra to speak with a human being? If the contract includes 5 phone calls a month, how much for the 6th?
User Licenses: Most subscription software is priced in one of two ways: by named users or by concurrent user licenses. Named users mean you pay a fee for every individual user. By contrast, if you pay for 20 concurrent user licenses, up to 20 employees can use the system at once.
Staff Costs: When implementing a new ERP, you’ll likely need a dedicated system manager to focus on optimizing your investment. Will you reallocate or expand staffing to support the new system?
User Training: This includes vendor and contractor fees for the initial implementation as well as ongoing training costs. If you’ll be wanting in-depth training at workshops and user conferences, include registration and travel expenses.
Get clarity from vendors about which services are included in your contract and which are billable. Determine if there are any areas where they recommend hiring outside contractors.
Lost Productivity: Businesses experience a temporary decline in productivity when they change software. Not only does implementation and training cut into people’s time, but every department also runs slower as the staff adjusts to the new system. Estimate productivity costs by talking to industry peers about their own implementations.
Growth: If you have plans to hire more people, open new locations, or offer new services, you should factor in costs for additional user licenses, hardware, training, support, and products. Ask vendors about the process and fees for setting up new branches and users. If your strategic roadmap includes new technology tools, such as a new e-commerce site or mobile apps, factor in those costs as well. Find out if you’re locked into using each vendor’s solutions or if you’ll have the option to build your own.
Yearly Price Increases: Just like everything else, costs go up. Most vendors can’t guarantee pricing for the next 5 years. But you can forecast the trend by looking at the past 5.
Choosing a new ERP system is intense. It’s easy to develop tunnel vision and make a decision based on the number quoted in a contract. Remember to look at the entire picture so whatever your decision, you truly know what you are buying.