ERP system price is complex to understand. It contains several variables impacting not only your costs but the outcome of your project. With several options available, it’s often hard to compare them and assess the actual ERP software cost of ownership.

Although you might appreciate the straightforward ERP System Price with fewer variables, the variables offer flexibility. Depending on your business model, some pricing models could be more affordable. Therefore, a thorough understanding of different variables of ERP System Price and how they would impact the implementation is essential.

ERP Software Licensing Costs

On-Prem ERP System Price Option

When it comes to ERP software licensing costs, the on-prem and cloud pricing model could differ significantly. The one-time ERP system price for an on-prem individual license could be 2.5-3x that of a SaaS user. Additionally, the on-prem model will require you to pay software maintenance costs of ~25% of your yearly licensing fees.

With an on-prem option, your first year’s spending will likely be more since you pay upfront. On-prem users are typically more expensive because cloud models allow you to distribute your license costs over several years.

To compare the differences between the On-prem and SaaS models, suppose both options support three user tiers. Also, assume that you have 60 employees in total. Of these, 10 are financial and operations admins requiring access to planning modules and financials. Twenty are managers/supervisors who approve POs and assign tasks, etc. The remaining 30 could be shopfloor or warehouse workers. They might require interactions with ERP for data entry, such as labor or material reporting. Here is how you can compute the costs by comparing both on-prem and SaaS options.

Total Spend Calculation

• # of users: standard users = 30, manager users = 20, admin users = 10
• SaaS: standard user = $100/month, manager user = $150/month, admin user = $250/month
• Total Annual Spend SaaS for 60 users = 30*100*12 + 20*150*12 + 10*250*12 = $102,000
• Total 5 Year Spend Saas = $102,000*5 = $510,000
• On-prem (one-time fee): standard user = $3,000, manager user = $4,500, admin user = $7,500
• Total Spend On-prem for 60 users = 30*$3,000 + $4,500*20 + $7,500*10 = $255,000
• Total 5 Year Spend Including 25% annual Maintenance = $255,000 + $255,000*.25*5 = $573,750
• Assume you will spend $2,000 monthly for hosting, infrastructure maintenance, backup, and upgrades. Even if you decided to maintain your server and hardware, you would spend about the same on Windows, VM licenses, and hardware. You might also pay additional costs for a special internet connection, electricity costs, installation, etc.
• Total 5 Year Spend Including Maintenance and Hosting = $573,750+ $2,000*12*5 = $693,750

Depending on the price offered by the vendor, the on-prem option could be higher or lower.

For the on-prem option, just because you pay once, there is a common misunderstanding that it is typically cheaper. Once you have accounted for all costs, you will realize it is rarely the case. These costs could include increased consulting costs and internal efforts to maintain your data center. Additionally, the on-prem option would not scale as quickly. Furthermore, you might also have a significant unused capacity to accommodate your seasonal spikes in volume.

Concurrent Option

However, there could be potential cost savings opportunities with an on-prem option if you bought concurrent users. While rare with cloud ERP providers, some cloud ERP vendors, such as Acumatica, also offer this option. A concurrent license allows multiple users to access the same license seat simultaneously. But its cost could be 2-3x that of the regular user.

Therefore, if you opt for this model, you may need to analyze your ERP users’ expected usage behavior. If most of your users are seasonal workers or work in shifts, the concurrent option could be appropriate. This option allows shift workers to use the same license seat without impacting other users’ workflow. It will also help save significantly in licensing costs.

SaaS ERP System Price Option

Named User Option

The named user option, which is the most common cloud ERP licensing model, allows you to pay for each user. Besides paying for each user, some ERP vendors may have additional surcharges for base costs or a minimum number of ERP users. Additionally, they might increase their ERP system price based on the edition.

The other ERP vendors make it more comfortable with their flat ERP system price-per-user option without any complications. But the disadvantage of the flat-price-for-all model is that you might pay higher for non-admin users.

Several ERP vendors that serve small-sized customers might also have tiers with their ERP pricing. For example, the starter edition for these ERP vendors could be significantly cheaper. But once you reach 20 users, they might upgrade you to the next tier, increasing your per-user ERP system price.

Consumption-Based Option

The consumption-based ERP system price is another standard pricing model that exists for cloud ERP software. The consumption-based price tier design is based on the number of transactions instead of the number of users. The transactions could be the monthly volume of sales orders, purchase orders, or invoices, depending upon whichever is higher.  Once you grow the volume, you might need to upgrade to an expensive tier.

The advantage of a consumption-based ERP system price is that you will get an unlimited number of users. However, the pricing model is even more complicated as it’s hard to estimate the expected transaction volume. Also, the perceived fear due to unpredictable costs with expensive tires may keep off several buyers. These tiers, however, could exist even with the named users.

Still, once you understand the model’s nuances, you could have significant cost savings. These cost savings could especially be relevant if you are a low-volume business. Some examples of these low-volume businesses could include high-dollar manufacturing (MTO, CTO, or ETO). They could also include distribution (industrial or machinery), services, or construction businesses.

Entity-Based Option

Another ERP system price model for cloud ERP software is to charge based on the number of entities. This pricing model includes entities as an additional variable in its model, together with users.