Choosing the Right ERP Deployment Option for Your Business and Budget
Explore the pros and cons of on-premise, cloud, and hybrid ERP deployment to make an informed decision and find the best ERP deployment option for your business needs and budget.
In this article we cover
In this article, we’ll dive deeper into ERP deployment options and their impact on pricing, as discussed in our guide to ERP pricing.
Eight to ten years ago, ERP deployment options were hardly a consideration. Most Enterprise Resource Planning (ERP) solutions were licensed and deployed on your own premises or perhaps licensed and hosted by a reputable third party. But now — how times have changed! Today the majority of businesses have some sort of cloud strategy, and the shift to the cloud and SaaS has begun in earnest. Just a few years ago, 31% of survey participants in the 2019 Mint Jutras Enterprise Solution Study had a SaaS deployment of ERP, and for those that did not, 51% said they would move in this direction, some sooner, some later. But that data was pre-pandemic. The sudden shift to working from home left many with on-premise ERP deployments wishing they had moved to the cloud sooner.
Yet, while for most, “cloud” is a given today, it is important to understand all the options available. Non-technical ERP end users often don’t know or need to know which deployment options are being used to deliver the application and they are even less likely to care how it is paid for. But for those responsible for the purchase decisions, understanding the different ways ERP is deployed is critical to understanding exactly what you are paying for.
Cloud ERP vs. SaaS ERP
Before we explore the different ERP deployment options, it is important to acknowledge the difference between cloud and SaaS. While the two terms are often used interchangeably, they do not mean the same thing.
Cloud ERP Systems
Cloud refers to access to computing, software, and storage of data over a network (generally the Internet.) You may have purchased a license or a subscription for the ERP system and installed it on your own computers or those owned and managed by another company, but your access is through the Internet and, therefore, through the “cloud,” whether private or public. Just because a solution has been web-enabled does not mean it is delivered or deployed as SaaS.
SaaS ERP Systems
SaaS is exactly what is implied by the acronym. ERP Software is delivered only as a service. It is not delivered on a CD or downloaded to be installed on your own (or a third party’s) computer. It is generally paid for on a subscription basis and does not reside on your computers at all.
We can conclude: All SaaS is cloud computing, but not all cloud computing is SaaS. For more on this topic see Understanding SaaS vs Cloud ERP.
Common ERP Software Deployment Models
While some ERP vendors only offer a cloud ERP deployment that is exclusively SaaS, others still offer choice, with the following options being the most likely:
ERP Software as a Service (SaaS)
ERP Software is delivered only as a service. It is not delivered on a CD or other media to be loaded on your own (or another party’s) computer. Cloud ERP systems fall under this category.
Hosted and managed by your ERP system vendor
ERP Software is licensed by you, but you pay your ERP software vendor to manage and maintain (host) hardware and software.
Hosted by an independent 3rd party
ERP Software is licensed by you, but you pay another party to manage and maintain (host) hardware and software.
Traditional licensed on-premises ERP
With on-premise ERP, you license the ERP software and are responsible for managing and maintaining it on your own premises.
Parts are licensed and maintained on-premise and parts (e.g., add-on modules) are SaaS cloud ERP solutions. A Hybrid ERP deployment allows organizations to take advantage of the benefits of both models by utilizing the cloud for certain functionalities and on-premises for others, effectively creating a hybrid cloud ERP deployment.
In the descriptions above, we use the term “license” loosely. In our post about ERP licensing options, we noted that in the past, software in general, and ERP systems in particular, was always licensed for use. However, very often today, those licenses are replaced with subscriptions. Licenses and subscriptions grant your company the right to use the ERP solution under specified terms and conditions, which determine what, who, and when it can be used. And so, the term “license” above simply means you have been granted the right to use it. This is an important distinction because while you generally will subscribe to a SaaS solution, the vendor might offer a subscription (a form of term license) even if the ERP system is not delivered as a service (SaaS).
Enterprise Resource Planning Deployment Models: Analyzing the Impact on Cost
When determining how your ERP deployment model impacts the pricing of your selected ERP system, it is less about whether it is running in the cloud and more about what is included (or not) in your license or subscription. The primary categories impacting the total cost of ERP are software, hardware, maintenance, and professional services (think ERP implementation and consulting). Apart from professional services, a SaaS subscription is all-inclusive, while a non-SaaS subscription is typically more “à la carte.”
It is worth noting that a hosted model may very well be priced identically to a SaaS subscription, with the same services included. This is most likely the case if you purchased your solution from a hosting provider (generally your ERP vendor or one of its partners).
ERP Software and Maintenance
One big difference and advantage of a subscription over a perpetual or term license is that maintenance (and its recurring cost) is included with your subscription. With an SaaS subscription, not only are support and maintenance included, but your SaaS provider takes on the responsibility of maintaining the software. This relieves you of the burden of applying any bug fixes, upgrades, and new releases and also assures you remain current and up to date. With an on-premise or hosted ERP deployment, you will either pay your employees to do it or your hosting partner. And if you neglect to do so, you pay in many other ways, including adding risk.
ERP Hardware and Infrastructure
Then there is the cost of hardware and the infrastructure to maintain it. All software requires hardware, whether you “see” it or not. It needs to run on something. It is either running on your own hardware, whether a device (e.g., your phone or laptop), a server in your own data center, or one you access through some network. If it is running on your own hardware, the price you pay for the software might also include support and maintenance (of the software only), but it doesn’t include any cost of procuring and maintaining the hardware. And it doesn’t pay for the installation, the cost to run it (think electricity, heating, and cooling), or the cost of obsolescence. But rest assured, you are still paying for that, whether you buy or lease the hardware and pay your employees to maintain it or write a check to a trusted third party.
And so, while the cost per month (or per year) of a SaaS subscription may, at first glance, look higher than the cost of an on-premises or hosted solution for your ERP deployment, be careful to compare apples to apples. With a SaaS subscription, you will likely get much more in terms of services delivered, which is why many small businesses prefer a cloud deployment.
And while it is hard to anticipate the cost impact, you are also getting a much more elastic environment – one that can grow (or shrink) as your business grows (or shrinks). The infrastructure cost (hardware and maintenance staff) tends to be fixed when the solution runs on-premises and even with some hosted environments. But that cost should become variable in a SaaS environment, without the need for additional capital expenditure. Be sure to verify up front if your monthly or annual cost can shrink if your employee base or your needs are reduced. With some SaaS solution providers, it is much easier to add cost (more users, more functions) than to reduce cost.
Professional ERP Services
The cost of professional services may or may not be impacted by your choice of deployment. Much will depend on the complexity of your business, how well the ERP system meets your needs in terms of fit and business processes right out of the box, as well as the ease of implementation and ease of use of the ERP system. Simply put, finding the best system for your business is the most critical step in limiting total costs of a system. Minimizing or eliminating any invasive customization will help drive down the cost of professional services unless you have the expertise and manpower to develop and maintain code yourself.
Fortunately, today, a modern, technology-enabled solution should allow you to configure and even customize your solution without making invasive code changes. Look for “low-code/no-code” tools that support the ERP system you are considering.
SaaS solution providers today have a lot of incentive to provide these tools, especially those who offer a multi-tenant versus a single-tenant solution. For anyone who may not be familiar with the difference in these terms:
Multiple companies use the same instance of (hosted) software; configuration settings, company and role-based access personalize business processes and protect data security.
Single-tenant (or Multi-instance) SaaS:
Each company is given its own instance of the (hosted) software but may share common services, such as an integration platform and security.
Most vendors who support a multi-tenant environment will not allow any customizations that involve code changes. These configuration and customization tools allow “tenants” to personalize and custom-tailor solutions to best fit their needs, thereby making the solution much more attractive. Some offer single tenancy even if their solutions support multi-tenancy, often for the express purpose of allowing customization. Be aware that you will pay more for this option, and which may add to the ongoing cost of maintaining your solution.
Of course, the alternative to paying for customization of the ERP software might be adding to the cost of professional services to help you redefine or re-configure your business processes to conform to the new ERP system. This up-front cost may indeed pay for itself over time through added efficiency, if you are adopting best practices for your industry.
ERP Deployment Options Summary and Recommendations
While the shift to cloud-based ERP has gained a lot of momentum, you still have decisions to make regarding your ERP deployment strategies. In pricing out different options, ensure you fully understand what is included in your ERP solution purchase so you can maximize ROI of your new ERP implementation. Cloud ERP system deployments might seem more expensive at first glance but will likely include more services.
Finally, look carefully at all your costs: software and maintenance, hardware and infrastructure, and the up-front and ongoing costs of professional services. These critical factors will help guide you in your ERP selection process and help you to determine which deployment method fits your business and budget.