All the Key
Cost Factors of an
ERP Purchase at a Glance Regarding SaaS and On-prem

Costs that arise when purchasing an ERP Solution

Buying a new ERP solution is anything but easy. The choice is overwhelming. Decisions that you have made once can only be reversed with great effort. It is therefore logical that many companies prepare extensively for their ERP selection.

Attention: Costs are also incurred even before a decision is made in favor of an ERP solution, especially as the selection process, which can take several months, ties up personnel resources.

What are the most important cost factors to keep in mind when you are looking to purchase ERP software (and of course a successful implementation and a smooth go-live)? And what are the differences with regard to the various software operating modes?

Excursus: Cloud (SaaS) and On-premises

💡 These are two different operating modes for software.

If you opt for a cloud solution, an external provider makes the software available to you online. Here, SaaS (Software as a Service) is the most popular cloud service model, which is why this article will refer exclusively to this variant.

The biggest advantages of SaaS are that you don’t need your own server in the company and don’t have to worry about regular updates and maintenance - the provider takes care of these tasks.

“On-premises” (or “on-prem” for short) means “on site”. In this operating mode, the ERP software is located in your company - you host it on your internal computer or server.

One-off Costs

Software License and Maintenance Fees - On-prem

When it comes to on-premises solutions, the purchase of the software license is a one-time thing. The license prices are calculated on the basis of simultaneous use (“Concurrent Users”).**

Hardware and Infrastructure

For an on-premises solution, you need a complete server environment with databases, storage capacity and encryption tools. If a data center is operated on site, you should also factor in additional infrastructure costs. These include direct and indirect costs for building and room management. Additional expenses may arise from theft/fire insurance and business interruption insurance premiums.

Regardless of whether you choose a cloud solution or on-prem, you may need additional hardware such as devices, printers and scanners.

Consulting Services

Consulting usually includes services, e.g. implementation, project management, customization, integration and go-live support. This cost factor is difficult to estimate in advance and is thus often responsible for budget overruns.

Customizing

How high the costs are that arise from customization depends on the extent to which the standard ERP solution already covers your desired functions.

In this context, it is advisable to always check in detail first what the standard can already fulfill before making costly customizations. In particular, specialized industry solutions already meet many requirements.

Migration of Data

Costs are incurred for the data cleansing in your old system and the preparation and implementation of data migration.

Decommissioning of Legacy Systems

There are also costs associated with the decommissioning of your old ERP system. The amount depends mainly on the agreements with your current vendor.

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Lower Productivity

This is an important cost category that is often overlooked. It mainly relates to the cost of your own personnel support for the implementation of the project. It is very important to take this cost factor into account, as costs are already incurred upfront.

This includes, for example, the time and personnel costs for preparing an as-is analysis of the processes, which is then used as the basis for drawing up a requirements specification for the ERP implementation that lists all the functions that are required in your ERP system.

There are other (hidden) cost factors that can also be significant with on-prem - but which you don’t have with a cloud solution. These include the costs of limited mobility.

Recurring Costs

Software License and Maintenance Fees - SaaS

In the cloud ☁️ or SaaS world the most popular pricing model is a fixed monthly amount, which is supplemented by prices based on named users.

Upgrades/Updates - On-Prem

This cost category only affects you if you opt for an on-premises solution. From a licensing point of view, these costs are often included in the prices for cloud-based ERP systems and updates run automatically - this also applies to individual customizations. This means that with an ERP solution such as Business Central, you don’t have to worry about additional costs.

Testing and Quality Assurance

Thorough testing of the software and processes during the implementation phase and then on an ongoing basis, for example after the installation of an upgrade, is extremely important. This also incurs costs.

Support

Support comes in many shapes and sizes. This includes technical support, which covers the provision of help and assistance with problems or questions that may arise while using the ERP software. The costs depend, among other things, on the complexity of your system and the decision as to whether you want to carry out the work yourself or externally.

People

Training

What can you expect from your new system without sufficient training? Not much. The training of both your key users and your end users is essential for success. Training is required before, during and again after implementation.

In addition to the training costs in the narrower sense, i.e. the costs for the training measures by the vendor, there are internal costs. This is because employees will be absent from day-to-day business and will also need to become familiar with the new system before they can work productively with it.

Change Management

Change management is an important part of an ERP project that you should definitely keep an eye on. Costs arise from the effort you have to make to inspire the team for the new ERP software and support them in the change process. This cost factor should not be underestimated either!

The Key Cost Factors at a Glance

The complete (!) Cost Overview as an important Part of your Project Preparation - the Cornerstone for your Success

This overview can help you get a better overall view of the costs associated with your ERP project. There are a few differences depending on whether you want to use a cloud or an on-premises solution.

Dealing with the costs correctly will ultimately contribute to a successful ERP project - so deal with this early on and include all mentioned cost factors. If you have any further questions on this topic, please do not hesitate to contact us. 😊