5 years ago we first published a series of posts entitled “Software That Matters.” It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system. Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.
After five years, we thought it was time for an update, to reflect lessons learned since then. As it turns out, the vast majority of what we said then remains every bit as true today. Still, five years is a long time… so we decided to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2015. We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.
In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy. In other words, the Software That Matters.
Today we offer post #8 in our series. Our full series begins here. We hope you find it of value and welcome your feedback.
More on ERP Costs (How Much, Part Two)
We earlier noted an entry point price of about $30,000 for a complete financial and rather modest manufacturing (or distribution) software suite. That’s for about 5 users. Figure roughly $4,000 for each additional user, and you’ll have a pretty valid estimate of software costs. Thus, at 10 users, figure about $50,000. At 20, you’re in the $75,000+ range. Pricing diverges as user counts increase, so it’s not a straight line calculation, but these will get you in the ball park. Again, that’s for software.
As noted earlier, publishers charge anywhere from 16% to over 20% per year in annual maintenance fees for their software maintenance agreements. These are very profitable to the publisher, and it’s their way of keeping you locked in, but also current. They’re more profitable to the publisher because only a few give any kind of reasonable margin to the selling partner or reseller. They are usually mandatory during year one. They have a tougher time making these mandatory farther out in some cases, particularly if the customer has extensively modified their software. But that’s a whole other topic entirely.
With this rough estimate of software costs, the other shoe now drops: services.
We’re prejudiced, admittedly, but our view is that the best software in the world is fairly useless unless it’s properly, carefully and methodically deployed. The truth is, ERP deployment is complex, difficult, time consuming, labor intensive, and generally not fun. (Although we once had a client tell us “You guys make ERP fun!” That’s the first time we’d heard that one.)
Deployment costs (i.e., services) are more difficult to estimate, as truly, no two clients or deployments are the same. Very broadly speaking, a fair range of cost estimates runs from one to two times software costs. There’s a lot of analysis, setup, configuration, data transfer and planning time required in all system deployments. These are more or less ‘fixed’ costs, so when they’re spread over fewer users, their actual dollar value forces the estimate to closer to two times software; whereas when spread across more users, these costs represent a smaller percent of the overall deployment costs, and thus a final figure closer to one or maybe 1.5 times software costs. Again, all estimates are just that: estimates. Your mileage may vary. Software customizations will add additional cost.
And for sure, we always say this: We cannot quote what we do not know. We live and die by those words. Any experienced ERP implementer will tell you the same.
So, to wrap up: If you’re looking to implement ERP – properly – for about 5 or so users, complete with financials and some very basic inventory control, manufacturing or distribution functionality, you’re looking at a project that will probably run about $75,000, spread over several months, again depending on any number of factors. At 10 users, you won’t be double that range, but you’ll probably be over $100,000, give or take. Less complex deployments will cost less; more complexity, and other functionality not listed here (which you can often add later) will increase costs. To be fair, it’s not unusual for costs to go double the above estimates. The important thing is to know what it’s going to be before you even get started. At the least, you can build your planning budgets around these figures, and in turn, use those figures to determine just how big a bite of the apple you’re willing to take.
Which brings us back around to one of our long-time, key implementation tenets: Whenever possible, start small and discrete. We’ll have more to say about that next. Stay tuned…