What Factors Determine the Cost of ERP Software?

The major enterprise resource planning (ERP) vendors in the market are notoriously cagey about the cost of their software—but if you’re reading this, you probably know this software isn’t cheap.

There are a number of factors that influence the final price of an ERP system. Typically, when a buyer has selected an ERP vendor, both parties will negotiate the terms and enter into a contract.

This can be a long, drawn out affair depending on the size of the company purchasing the software and their requirements. However, the total price is generally influenced by several major factors.

Primary Factors Affecting ERP Pricing

Users and Customization Drive ERP Cost

The size of your business will most likely decide the number of users you have on the system and what applications are required. Small and midsize businesses (SMBs) will generally require fewer user licenses, but may not have access to some of the higher-end applications that come with some of the larger systems on the market.

There are seven common features of ERP software:

  1. ERP accounting
  2. Business intelligence
  3. Customer relationship management
  4. Human resources
  5. Inventory management
  6. Manufacturing
  7. Supply chain management

While each of the above features can add value to an overall ERP system, many companies won’t need all of them—and conversely, some companies may require additional features.

For example, some firms that do custom manufacturing might require additional modules and features to allow for more flexibility with their production planning and supply chain management applications.

A 2015 survey by Panorama Consulting found that only 7 percent of companies use ERP software as-is, with the remaining 93 percent customizing their software to some degree.

Customization, not to be confused with standard package configurations, can add up though—especially if you’re in a niche industry with specialized business processes.

Pricing Structure Differs by Deployment Model

One major question for businesses seeking new ERP software is whether to deploy an on-premise or a cloud-based system. Over the course of a year, subscription fees for a cloud-based system will typically add up to about 20 to 30 percent of the cost of a similar system’s perpetual license.

Depending on the vendor, maintenance and support may be included, or it may cost extra. With an on-premise deployment, users must still pay annual support and maintenance costs that run between 10 and 20 percent of the original licensing fee.

Despite the variance in pricing models, we have found that the costs tend to converge over time.

What Companies Are Willing to Spend

To give you a better idea of what you can expect to spend on ERP systems, we analyzed the estimated budgets of 100 SMBs that contacted Software Advice between 2014 and 2017 in search of a new ERP system.

The following chart is broken down by the number of users of these buyers’ companies:

Estimated Budget for Perpetual License vs. Cloud-Based ERP Systems
Larger businesses usually tend to be less hesitant about making a significant investment in an on-premise system. But for SMBs, cloud-based offerings can be much more attractive due to the lower initial price point.

Since their subscription licenses are considered an ongoing operating expense, software vendors tend to competitively price their cloud-based options.

Conclusion

As varied as ERP software pricing can be, we hope seeing what other businesses in your bracket typically budget will help you make a more informed decision about your own purchase. For more resources, check out our FrontRunners quadrant to see what the top-performing ERP products in the market are.

If you’re interested in getting even more personalized assistance, you can reach out to our helpful advisors for a free phone consultation by calling (844) 680-2046.

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