For a traditional on-premise system, expect to pay for an application software license, computer and related hardware, system software and utilities, installation and implementation services including data conversion and software tailoring, user training beyond what may be included in the license purchase, and implementation support (consulting). An old rule-of-thumb says that the total should be about evenly split between hardware, software, and services. Hardware costs continue to decline while service costs tend to increase, so adjust those percentages accordingly.
For a traditional on-premise system, small companies should expect a total cost between $20,000 and $200,000. Mid-sized companies typically spend $150,000 to $750,000 or more. These ranges are so broad as to be useless but that’s the nature of the business – each company and situation is unique. That said, it makes sense to look at system costs on a lifecycle costs basis. Estimate the total purchase, implementation, support, and maintenance costs for a reasonable period of time – 5 to 7 years – to budget what your all-in costs will be then compare that to the benefits to determine the return on that investment.
The costs of cloud-based ERP systems are structured very differently. The main difference is that cloud systems are typically offered on a subscription basis called Software-as-a-Service (SaaS). There is little in the way of up-front costs for hardware, software, and installation, but companies still have to budget for implementation services and user training.
The SaaS subscription price, an operating expense rather than a capital expenditure, includes not only the software licenses and ongoing support and maintenance but also the same for hardware and IT support. In other words, the subscription cost includes almost everything needed to deliver and maintain the systems and software. Lifecycle costs for cloud-based and SaaS ERP over 5 to 7 years are usually about equivalent to on-premise system costs. Most companies choose a cloud-based ERP for reasons other than cost, which are many and are not addressed in this article.