In today’s competitive market, It is vital to run your business efficiently to ensure maximum profitability and success. Implementing ERP systems ensures that your business runs smoothly with as little friction as possible. This is especially true if your business has various elements functioning as one.
To build an ERP system from scratch, you must remember that it is a culmination of several variables that need to be strategically planned out before the actual implementation. When you consider how many users your system may have (especially for larger firms) and modules that you decide to employ, figuring out the exact cost of ERP systems might put you in a dilemma.
However, understanding it is quite simple once you evaluate the individual requirements of your firm to prepare a more appropriate ERP budget. In this blog, let us take an in-depth look at what are the factors which are to be considered for establishing an ERP system, we will try to justify and find out how much it costs to build an ERP system.
What is ERP?
ERP, or Enterprise Resource Planning, is a complex and essential component of any business operation. It is a software solution that automates business processes while maintaining accuracy and quality. Purchasing an ERP solution benefits both small and large enterprises.
Some of the best ERP systems are typically offered as modules that comprise automated components that manage specific business tasks. This feature enables you to choose an acceptable solution that includes one or more features. Examples include inventory, finance, payroll administration, sales, marketing, HR systems, and operations.
Factors Affecting the Cost of Building ERP System
A variety of factors have a direct impact on the cost of establishing an ERP system. These include installation and training expenses, developer location, and maintenance costs, among other things. It is impossible to provide a one-size-fits-all solution. Here is a cost breakdown for ERP software development depending on all criteria.
User and Features
When determining if an ERP system is cost-effective for your firm, consider the number of users who will initially have access to the system. Many ERP companies charge by the user. This means that as the number of users increases, so does the cost of ERP.
Oracle, a leading ERP systems provider, for example, charges you $185 per user per month for utilizing their basic software and system. You should also evaluate the cost of adding additional users and how that cost may rise in the future as your organization grows.
Aside from the number of users, you must also decide on the features that should be included in your ERP system. There are a few key aspects that distinguish ERP software from other forms of software, notably, common databases, automation, interaction, data analysis, etc.
Add-on Modules
You may integrate a variety of third-party add-ons, such as an Enterprise IMs tool or social network logins, to provide your staff with a full set of services and functions. For greater functionality in your system, you can also include specific modules such as supply chain management.
The pricing of these extra features will vary based on what you opt to include and which vendor you select. On average, each module can cost between $4000 to $12000 depending on the size and nature of your business.
Hence, it is imperative to first determine your particular requirements before investing in a solution that meets those objectives. Correct estimation might be one of the most important tactics for increasing the ROI of your system.
Development Hours
The amount of time it takes developers to establish an ERP system also has a significant impact on the entire cost of developing ERP software. The time it takes to develop ERP software is proportional to the number of developers.
Without labor expenditures, the annual compensation of a US software developer is $15,000. You can figure out your requirements accordingly.
If your product is complicated and you want to reduce development time, your ERP developer may charge you to hire additional manpower needed. This means you might have to spend more money. In contrast, if your software development is less complex, you will have to pay less than in the preceding scenario.
Implementation
Because ERP systems are software programs, you will almost certainly need to upgrade your operating system, hardware, and software for the ERP system to function effectively. It is best to have specialists install and configure your ERP system if you are installing ERP for the first time.
When a company transitions from a legacy system to an ERP system for organizational growth, it necessitates a variety of process redesigns. This will simplify and ease the process of implementing ERP software. However, these installation costs must be factored into the overall ERP cost.
As an estimate, these costs can range anywhere between 10 to 15% of your total ERP Budget. Furthermore, some development companies provide extra consultative support, although this comes at an additional expense.
Maintenance
Unless you invest in a cloud-based ERP solution, your on-premise system will require periodic and scheduled maintenance to guarantee that it is always up and functioning as planned. ERP maintenance costs typically range between 15-20% of the initial purchase/implementation cost.
Training
It may be difficult for your employees to begin using a freshly implemented ERP system right away. That is why they may need some further training on how to operate such a system. At an average hourly rate of $40, your ERP provider may charge you for the same.
In such a circumstance, you must consider these additional expenditures when evaluating ERP systems for purchase or deciding on a custom ERP system.
Software Updates
When a new version of your ERP software is launched, you must begin preparing the upgrade. The last thing you want is for your system to attract problems and faults. You should inquire with your vendor about how frequently updates are made and whether the cost of these upgrades is included in the standard price of the ERP system development.
Support
Throughout the ERP system’s existence, you will encounter several difficulties that you will have to resolve and maintain for your system’s users – something that will come at a cost.
Your vendor may charge you an additional service fee each time you want your system maintained. These costs usually are limited to 20% of your ERP system’s cost. If any component needs repairing or changing, it will cost you extra depending on your vendor.
Aside from the factors listed above, the pricing model is another component that influences the final ERP price. So, let us have a look at the various pricing models available in the market.
Pricing Models of ERP System Development
Companies are usually charged anywhere between $9000 to $150000 as the cost to build an ERP system from scratch. These charges are usually determined by various factors such as the size of your business, the number of users, the type of software, and the module that you choose to integrate into your system.
That being said, ERP software suppliers typically work around two basic price structures – perpetual licensing and subscription options.
- Perpetual Licensing (On-premise Systems): Organizations that want to host ERP software on-premises can use perpetual licensing. Companies in this situation are obligated to pay the ERP software’s one-time up-front charge.
- SaaS Subscription Model (Cloud-based Systems): Subscription plans are available for businesses using cloud servers for ERP software adoption. The vendor hosts as well as maintains the ERP system on a third-party server in this pricing arrangement. A basic Saas Subscription in this case costs approximately $100 per user per month.
Conclusion
By now, you must have an idea of how much it might cost to build an ERP system within your business. While drawing out your budget, consider the above-mentioned factors and compare them with the needs of your firm. Selecting the right modules and vendors can have a positive impact on your overall costs.
ERP software development pricing is a complex process in its entirety. Consequently, you must have a solid understanding of your cost factors to stay within your budget. To obtain an accurate ERP development cost analysis, it is also necessary to consult software professionals from the very beginning of your ERP software development.
