ERP is expensive, and the cost can vary greatly depending on the organization.
Obvious factors range from company size to number of users, from depth of desired functionality to what services a particular organization requires and, frankly, how savvy their users are.
According to an Aberdeen survey called “The Total Cost of Ownership of ERP in Mid-Size Companies” over half of the nearly 650 companies surveyed cited TCO as – not surprisingly – their number one concern.
TCO covers a broad range of expenses well beyond just the ERP software. For example it includes hardware, services to implement, license costs and maintenance on all software modules. Some companies may rightly choose to include certain staff costs in their TCO assessments as well.
The survey found that the cost for a $50 to $100 million company that included an average of 92 users totaled just over one million dollars of total investment. In a company of $100 to $250 million revenues and just under 200 users, the figured rose to $1.7 million. Of course, for larger companies, TCO rose accordingly.
In the Aberdeen survey, only Microsoft was willing to share cost information, and those included $2,250 per user for the Business Essentials version of its software, and $3,980 for its Advanced Management suite.
[PSSI can confirm those remain the exact prices still being charged today for the Dynamics NAV solution. Moreover, our analysis has been that the Advanced Management functionality is typically what’s required in the manufacturing and distribution environments.]
Our own experience teaches us that the $4K per user for license costs, plus an allowance of 16% for annual maintenance provides an appropriate cost estimate. Greater functionality beyond the core software often requires additional investment in added functionality, or sometimes, third-party add-on applications.
To the pure software license costs (est. $4K per user) we then advise clients to add one to one and a half times those software costs, on average, for deployment. The cost varies depending on the number of users to be trained, as well as depth of training, experience of the users, and modifications required to processes or software. Generally, the more users the lower the ratio of service costs to software license costs, as the costs of training and deployment are spread over more users.
Our deployments actually tend to cost considerably less than the Aberdeen assessments above, but they also don’t necessarily include their 92 user average either. We’ve found for the small to midsize firm, say 25 users, that a budget of around $200,000 to $300,000 will get you the user licenses, annual maintenance and necessary training on a basic, full system. Hardware will add to that, but if your hardware is fairly current, those expenses can be minimized. Modifications would be quoted separately, where your needs diverge from base software functionality. Associated costs for appropriate SQL licenses and servers can add to your costs, as can additional (third-party) functionality.
Still, even at half a million dollars at the very high end, a company in the $20M to $50M revenues range, with say 25 to 50 users can be up and running in a few months, and expect to recoup those costs surprisingly quickly — IF they’ve put sufficient thought and effort into the planning stage upfront in conjunction with their ERP consultant 0r reseller.
So there you have it: our five-part latest wrap-up on the mechanics, benefits and costs of ERP. Over twenty years, we’ve learned that the costs to clients in money, time and, yes, some short-term anguish, are mollified greatly over the ensuing years by the benefits of reduced business costs, greatly increased capacity with similar staff size, and the ability to compete effectively while you grow in your chosen marketplace. As always, to those who persevere, i.e., the winners… go the spoils.
To aid you in system selection, we’ll present a “Mid-Market ERP Solutions Checklist” from InsideERP’s Buyer’s Guide, in our next post.
Meanwhile, the complete edition of the Inside ERP Market Buyer’s Guide is available here.
