As your business grows, its management and operational processes become complex. Handling all your business functions separately can be time-consuming, expensive, and inefficient. A better approach to organizational management is deploying Enterprise Resource Planning (ERP) software. ERP software provides a single, centralized information platform for efficient and cost-effective business management. But what are the costs involved in a new ERP system? What benefits and returns on investment (ROI) does a resource planning platform bring to your operation? This article provides insightful answers to these questions to help you understand what to be aware of when investing in such a system.
Understanding ERP Cost
It isn’t easy to put a standard price on a new ERP platform because businesses have unique needs and requirements. Allocating the budget for a new ERP platform requires careful planning, forethought, and understanding of your unique business needs.
Historically, one of the factors that determine your new ERP cost is the number of users. As a business manager, you can expect to spend an average of $9,000 per user when deploying an ERP software suite. This figure spikes as the number of users increases. For instance, if you operate a mid-sized organization your budget may fall anywhere from $150,000 to $750,000.
An alternative, and more cost-effective pricing model is a Cloud solution based on consumption. Consumption-based pricing is based on the computing resources you use, not on the number of users permitted into the system. In this scenario, you’re not required to pay for additional licenses, even when you add casual users, suppliers, and customers to the mix. You should not have to lose sleep over additional costs limiting growth.
Per user pricing limits growth, but if you’re charged for resource usage, you can provide all (not some) employees with real-time data. They can use this information to do their work quickly and accurately and to make good business decisions. Additionally, having the ability to grow-shrink resource levels and data storage when you need is a huge cost-saving benefit.
To derive at a more accurate budget, it’s crucial to know your business requirements as they determine the ERP components that go into your budget. Some of these key areas you must consider when budgeting for an enterprise resource planning system include:
- ERP licensing costs
- Additional network hardware and servers when not deploying in the Cloud
- Customization options (if need be)
- Data conversion and transfer to the new ERP platform
- ERP testing
- User training
- Go-Live Support
- Post-implementation consultancy support
These are the most crucial factors that impact your ERP budget; however, the cost may increase, and experts recommend setting aside contingency money to cover unforeseen costs.
Understanding the Benefits of Implementing an ERP System
The global ERP software market has been steadily growing as many enterprises continue to realize the benefits of unifying their business processes in a single ERP platform. In 2019, the worldwide ERP software market expanded by 9%, bringing the total software revenue to $39 billion. By 2022, the ERP software industry was valued at approximately $55 billion, and industry experts project that the market will undergo a compounded annual growth rate (CAGR) of 11% from 2023 to 2030.
Indeed, the growth in the ERP software market is because companies are seeing the benefits that an ERP’s centralized database offers. So, what capabilities does such a system provide that your business currently doesn’t have?
- Improved business reporting with real-time information
- Enhanced and cost-effective inventory management
- Data and cloud security
- Easy compliance with industry regulations and policies
- Improved cash flow
- Enhanced productivity
- Effective supply chain management
- Boosted visibility and scalability
- Cost-saving opportunities
- Organized business workflows
- Accurate forecasting
- Better team collaboration
Understanding the ROI of ERP Deployment
Allocating a large budget to ERP implementation is a big deal, and it’s crucial to justify the large investment by ensuring you get the expected ROI. The ROI of an ERP platform combines both tangible and intangible benefits.
- Tangible benefits – Also known as “hard benefits, these quantifiable benefits include metrics, such as revenue growth, improved equipment management, decreased material cost, reduced overhead, etc.
- Intangible benefits – It’s almost impossible to quantify intangible benefits, but that doesn’t mean they are less impactful. Intangible benefits include metrics like boosted staff morale, accurate inventory reporting, centralized information, legal and regulatory compliance, enhanced customer service, etc.
Calculating ERP ROI
You can determine ERP ROI by comparing the expected costs of a new ERP system and its anticipated benefits. Typically, ERP ROI is calculated by adding the expected returns and dividing the results by the Total Cost of Ownership (TCO). The resulting amount or quotient is the ROI of your ERP system. That said, the higher the quotient, the better the ERP platform is for your company.
ERP ROI = ERP returns
Organizational growth brings complexities to various business processes and workflows. Without an ERP system, business information is decentralized, increasing business management costs. However, implementing an ERP system means you have a centralized platform where all your business data is stored, which offers real-time business reporting, cost-effective management, and streamlined business processes.
Are you thinking of investing or upgrading to an ERP system? Partner with MaxQ Technologies, a reliable and knowledgeable software reseller, and independent software vendor with over three decades in providing business solutions. Contact us today, and we’ll leverage our industry expertise to help you implement an ERP system that will take your operation to the next level.