Whenever a company considers implementing an Enterprise Resource Planning (ERP) system, one of the first questions they typically ask is, “How much will this cost?”
This is a fair question. Implementing an enterprise-wide integrated accounting and business system is a significant investment, and although there are many variables to take into consideration along the way, it can help to have a general idea of what to expect.
Although our company has primarily implemented Microsoft Dynamics NAV (formerly Navision) solutions over the past decade, there are commonalities when it comes to pricing. The following guidelines apply to most small- to medium-sized companies looking to implement any ERP system.
Not all companies have the same requirements of their ERP system. Generally, a moderately-sized manufacturing company will require more complexity than a similarly sized professional services company. Since most ERP systems are priced according to the number of concurrent users and the level of access each of these users will require from the system, companies should expect to pay around $4,000 per concurrent user for a manufacturing or complex distribution company and around $2,000 per concurrent user for a professional services or light distribution company. Additional licenses for “light” users (users only requiring limited access to the system) are usually priced at a few hundred dollars per named user.
Third-party software products are often available to extend the ERP software or enhance it with applications tailored for a specific industry or specific business process needs. Third-party add-ons typically account for 10% to 35% of the overall software cost.
There are many factors that influence the actual cost of implementation: the company’s industry, the size of the company, the anticipated business volume, scope and complexity of the implementation, and the number of third-party integrations, to name a few. Most implementation costs are calculated based on a ratio of software to services. The more the company implementing the ERP system can handle on its own without relying on external vendors, the closer the software-to-services ratio can get to 1 to 1. For most companies of average size and complexity, however, it is more common to see software to services ratios of 1 to 1.5 or 1 to 2.5.
Very few ERP systems can be installed and used “out-of-the-box.” Therefore, most companies will require some amount of customization to integrate the ERP software into their workflow. The amount of programming, testing, and training is directly related to the size and scope of the effort.
For a typical mid-sized company, the total software and services cost will range between $150,000 and $750,000. Hardware and infrastructure costs are usually addressed separately, and typically these estimates assume an on-premise implementation rather than a hosted or subscription-based solution.
Admittedly, this analysis yields a wide range in price, but it should assist companies who are just starting the evaluation process to recognize the factors that influence the cost of their proposed ERP implementation. Moreover, it should prompt companies to carefully evaluate estimates that fall significantly below or above the ranges discussed here to ensure there are no hidden costs and that the company is in receipt of the best business value while they seek to minimize cost and risk.