What's the Cost of an ERP System Implementation?

Besides your ERP software license costs, you will need ERP consulting help to ensure the new ERP system configures appropriately. You will also need their help to customize the ERP software per your business requirements.

The Need For An ERP System Implementation Consultant

If you have never bought an ERP before and used smaller-sized business software such as Xero or QuickBooks, you might mistakenly assume and question the need for ERP consultants and training. Businesses that assume this might learn the hard way, as implementing ERP software is like learning a new language.

Since ERP implementation systems are highly configurable and customizable, even the best ERP system may not provide an optimum throughput if not configured correctly. To calibrate optimally, the ERP consultant must have experience working with similar businesses to reduce their training time on your business.

Additionally, they require mastery of that specific ERP software to recommend appropriate options and structure your data in a way that reduces friction from processes and expedites your business transactions.

Finally, since ERP systems are highly involved in nature, the implementation also includes training your team to ensure that your team can successfully use the product for their day jobs.

How ERP System Implementation Consultants Charge

Since the ERP consulting cost line item differs from your ERP software license, you might likely sign two separate contracts with two completely different companies. They might also follow completely different payment terms and structures. Unlike your ERP software license, ERP implementation costs are project-based and require you to pay once, depending on the efforts needed to implement an ERP project.

The duration and skillsets required for your ERP project could vary depending upon the complexity of your business operations and your ERP system needs. More straightforward ERP implementation could take 6-9 months, while smaller companies may be able to go live within a few months.

Your ERP implementation duration would also range based on your data’s current state and process documentation maturity.

Types Of ERP Implementation Project Contracts

The pricing model for ERP implementation could vary depending on the engagement model of your consultant. The four most common models exist when it comes to ERP implementation projects.

Time And Material (T&M)

The most common model is time and material (T&M), which essentially charges based on the hours worked.

With a T&M mode, you may want to use dedicated resources since an ERP implementation project could involve many stakeholders. And if you don’t allocate dedicated resources to the ERP project, resource constraints could cause additional wait times and a longer implementation cycle, increasing costs and risks. The downside of the dedicated resources is that the ERP consultant might bill you for hours even while waiting for your team to make progress.

Due to the high rate for ERP consultants, you might perceive the T&M mode to be the most expensive. But like other service companies, ERP consulting companies most commonly use them as they offer the least risk due to cost overruns or changed scope. It is also the most recommended methodology as ERP projects are harder to scope and execute as fixed-bid projects.

Fixed-Bid

The other standard ERP implementation model includes fixed-bid, where the consultant charges based on the project or the scope. While it might appear attractive at a surface level, assessing an ERP implementation scope beforehand is tough.

The ERP consultant might bill you for any scope creep, which might have significant cost overruns. With fixed-bid, you might also not have the flexibility to change the requirements as you gather more information about your business.

Recurring Model

The third and perhaps the most effective for both parties would be the recurring model. This model charges based on per day or month (sometimes distributed over several years).

Computed non-linearly, the average per-hour rate in this model is highly subsidized and lower as the consulting company has a predictable, fixed revenue stream. This model also has less admin overhead than the T&M model.

The advantage of this model is that you don’t pay the cost-prohibitive per-hour rate for each ERP consultant. And at the same time, you don’t lose the flexibility you would have with the fixed-bid pricing model. However, not every ERP vendor would agree to this pricing model due to the significant risks involved from their perspective.

Whichever ERP implementation project contract you choose, make sure you read the fine lines of the agreement. Sometimes an ERP consultant might claim they might finish the ERP implementation at half the cost. But the fine lines might include only a certain number of hours in that price that might be valid for a few months.

After exceeding that timeline, they might bill you a very high per-hour rate to compensate for the lost revenue as part of your fixed bid ERP project contract. Additionally, with this contract, the assumption would be that you will carry out most of the responsibilities and get trained using the documented resources.

Unless you have an in-house consultant with deep familiarity with the ERP system, you will require much more handholding than your ERP vendor would provide as part of their fixed bid.

Therefore, the fixed-bid option may appear most lucrative on the surface. It requires significant expertise to make it work. With the other models, you have flexibility and control in measuring and controlling your costs.