How much should an erp cost?

The million dollar question

We talk to dozens of people each week about ERP, from small mom and pops, to 500 million dollar international conglomerates, and  they all want to know the answer to the very same question How much is this gonna cost? Well depending on the solution you choose licensing can vary from $300-$2000/yr per user. So choose wisely. If you are doing the math with your company in mind, remember these are just the software licensing fees.

The majority of an ERP budget will be on implementation services. Since there is no such thing as an "out of the box" or turn key solution for every company, though many software providers would like you to think so. Any package you decide on is going to take some work to get it working for your company.


The cost of implementing ERP varies depending on the type, size, and maturity of the organization; the price ranges for medium to large scale businesses from $30,000 to over 10 million for the software itself based on users, and user types.  Other costs to consider include:

  • Company Types - Ecommerce, Manufacturing, Distribution, Professional Services etc.

  • Data Migration

  • Infrastructure Costs

  • Implementation Services from your Partner

  • Recurring Costs (Maintenance/Support)

Determining how much an ERP Implementation will cost your organization can be a tricky affair. This is because no two implementations are the same. The type of system you want, size of your company, functionality, user access roles and other factors will all affect the cost.

However, there are some general guidelines that can help you determine the charges to expect.

How Much Does it Cost?

The cost of implementing an ERP varies greatly depending on the type of business, modules required, integrations and data conversion/migration (from old systems/spreadsheets) Here is an estimation of the cost by business size:

  • Small businesses: $10,000 - $150,000

  • Mid-sized businesses: $150,000 - $500,000

  • Large enterprises: $1 million - $10+ million

The actual cost of the ERP software is only a fraction of the implementation. The majority of costs will go to internal and external human resources.  Implementing a cloud based solution such as Odoo can lower these costs as estimated below:

  • Application and Database management costs: 5% to 10%

  • Infrastructure costs: 10% to 20%

  • Software costs: 10% to 30%

  • Human resources costs: 40% to 60%

Company Type

The type of company that you have is also a major factor into what your system can cost. For example, a Manufacturing company is going to be much more complex than a Professional services company. If a company wants a “soup to nuts” Sales, Pipeline Management, Customer Service, Manufacturing, Distribution, Project Management, Accounting etc. this will cost much more than a company who just wants to implement CRM, Sales and Accounting.

Company size, why does it matter?

Company size is a big factor as well because it is indicative of how complex the implementation will be. User roles and the configuration can be a time consuming task. Tweaking all the security for the purposes of who can see what data is indeed very unique across each company. Out of the box roles are seldom satisfactory. The roles that are needed grow with the company size. In ERP every change you make has an effect on the overall effect configuration complexity. Also the larger the company, the more intricate and embedded the business processes can be.

So if you have a company of 10 people, that does the exact same thing as a company of 50 people, it’s safe to say in most cases, all other factors equal, the 10 person company will cost less than the 50 person company.

ERP Software Compared

Let’s take an example of a typical small company and do a comparison of 3 typical Small Business solutions. We will use 2 Cloud pricing models and 1 software purchase. We will assume software costs will represent 1 year on the cloud based models(Odoo and Netsuite) and 1st year + recurring maintenance costs. We will also assume an equal amount of implementation complexity on each package. Our example company will have roughly 30 users, 10 of which will require full access and 20 which will have minimum or limited access. Our company will be a typical manufacturing company that makes and distributes their own barbeque equipment through their own ecommerce website. The have relatively simple manufacturing and advanced Inventory requirements. We are also going to assume all systems will be hosted on a cloud system like Amazon, Azure or Google Cloud. We compiled this data based on viewing actual quotes given to a client of ours who got these from an RFP with identical set of specifications. These can and will vary depending on the system integrator. Travel and Expense costs are not mentioned since they would be considered equal across options.

Consequently these are actual figures we came across when a client of ours shared the quotations they got for Netsuite and B1, we change the company type for anonymity purposes.

Scenario from Past Client

Users: 30
Vertical: Light Manufacturing
Platform: Cloud and On-Premise


Odoo

Netsuite

SAP B1

First year Software Cost

$12,600.00

$143,000.00**

$66,000.00

Implementation Cost

$120,000.00

$185,000.00

$160,000.00

Ecommerce Module

Incl.

Incl.

$18,000.00

3rd Party Addons

Optional

Optional

$12,000.00

Total first year cost

$132,600.00

$328,000.00

$268,000.00

Recurring cost

$12,600.00

$143,000.00

$11,880.00

Cloud Hosting Costs

Incl

Incl

$6000.00/yr

Infrastructure-Other  Software Costs

N/A

N/A

$12,000.00/yr

Estimated Support/Partner Costs Annually

$12,000.00 after first year

$18,000.00

$60,000.00***
Need to maintain and manage own servers, unlike cloud based systems

Total Recurring

$24,600.00

$161,000.00

$77,880.00





3 year TCO/user

$1753/year/user

$6822.00/year/user

$5441.00/year/user

*This does not reflect any multi-year discounts

**Netsuite often offers steep first year discounts for signing multi-year contracts, price here is without that discount

***This cost is for internal resource maintenance of software and server since it is only cloud hosted, servers and software must be done internally

Generally, software costs range from 10% to 30% of the total cost of implementation. Vendors have different pricing models but the software costs will generally depend on the following:

1) Number of users

The number of users that will have to access the ERP will determine the price.

2) Industry of the organization If your organization is in a more specialized industry, it may be difficult to find an ERP that will sufficiently address your needs. Thus, the implementation may require heavy customization and third-party add-ons, which will increase costs.

3) Number of locations

If you have any questions about anything in this article, or see some kind of inaccuracy or discrepancy, please contact me directly at 732-366-1801 or email me direct at ray@vcloud9.com


About the Author

Ray Collazo is a 24 year veteran of ERP systems implementations both large and small. From large scale SAP and JDE implementations in the regulated life sciences and pharma sector, to small business start-up ecommerce sites with manufacturing backends. The opinions in this article are based on hands on experience as a Netsuite partner/user and also as an Odoo partner and now user. Ray has founded several Technology firms and worked as a channel partner for SAP, Sage, Netsuite, Salesforce and Odoo among others. Ray understands the fundamentals of business process engineering and the importance of a good plan and design. Ray is the founder and principal partner of VCloud9 LLC.

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