How to break down the true cost of your ERP system

With ERP implementation projects typically ranging in cost from $100,000 to more than $1 million, it can be extremely difficult for companies to take their eyes off the overall price tag. Once they’re past the sticker shock, buyers should be aware of hidden costs when it comes to choosing an ERP system, according to several experts with Forterro, an international group of ERP software and services companies.

ERP vendors may hinder your ability to understand the true cost of your project by offering discounts that don’t address all the fees.

“We see some projects where we have a competitor making very aggressive pricing cuts,” said Eric Delacourt, director of new business for Sylob in France. “Often these cuts will be based on short-term gains for the buyer, rather than a long-term partnership between the buyer and the vendor.”

Delacourt emphasized that it’s important to determine the total cost of ownership for the buyer. “As a customer, you should be careful,” he added. “You may get an initial fee that seems like an attractive deal. That same vendor may come back with additional costs over the life of the project because they didn’t identify the gaps created by the initial price.”

Cost considerations

While it’s true that you’re paying for licensing for the software, the comparisons shouldn’t end there. Here are some other areas to compare:

Installation: The cost of the installation of your ERP solution will vary based on the complexity of your business and its impact on the length of the process.

Consultation: To achieve the maximum results with an ERP system, you will need to prioritize which processes can operate more effectively, thereby providing the biggest gains for your company. In many cases, you will require outside consultation to help you with such assessments. An estimate of these consultation fees should be added to the overall cost.

Customizations: Your team should try to use the ERP out of the box as much as possible. However, if there are instances that require customizations to accommodate specific areas of your operations, this can result in more IT service charges. Also, keep in mind that once you’ve customized your solution, the onus will be on your company to financially maintain and support it.

Training: Another area that is critical to the success of your ERP project is training. Talk to your ERP vendor about what type of training is free, as well as a list of standard rates for extended or custom training.

Maintenance: All ERP vendors charge an annual maintenance fee to cover ongoing development costs, bug fixes, environmental compatibility, and other value-added services. Subscription models for cloud or hosted products may include additional managed services, such as backup and recovery, security, and global system availability. Talk to your vendor about what services are included in these fees in order to compare rates with another vendor.

Ask about support and other offerings

According to Maria Marcelius, an analyst for Jeeves, a Sweden-based ERP company, when interviewing vendors, try to get an understanding about the level of support available to you as part of the long-term partnership.

Support, which may or may not be included in your annual maintenance or subscription fee, could range from being able to readily contact the vendor’s support team with product questions, to self-service documentation and education.“Buyers need to make sure they’re getting value,” Marcelius said. “I’m a big believer in spending time on education. Educated users are going to better leverage their systems, and won’t need support as often.”