If you currently have a legacy on-premise ERP system and feel like it is not serving your business well – it’s time to consider moving to a more modern ERP solution. When it comes down to it, your ERP system should streamline work – not make it more difficult. Though switching ERP systems can be somewhat unsettling at first, you also shouldn’t ignore the benefits of a new selection or downplay the hassle your current system might be causing. To discover if switching ERP systems is in your best interest, you need to calculate your true cost of ownership. This is based on you return on investment (ROI) minus your ERP total cost of ownership (ERP TCO) over 5 years.
Calculating Your Current ERP Total Cost of Ownership (ERP TCO)
The ERP TCO is calculated based on the purchase price and implementation costs of an ERP system, along with the operating costs for the 5-10 years the system will be used. The upfront costs of ownership depend on multiple factors:
Vendor’s Licensing Policies
Depending on the vendor you will either need to buy the license outright or pay a monthly subscription for the license. If you have to purchase the software outright, you will also be expected to pay an annual maintenance fee for upgrades. Whereas with monthly subscriptions, upgrades are usually as part of subscription pricing.
Number of Users
In addition to the base software cost, almost all vendors (except Acumatica) charge a fee for every user of the system. Normally, they are categorized as heavy users (those that need to access the system all day as part of their work – like accounting staff) and light users (those who only use the system occasionally for price lookups or to enter time and expenses).
Depending your business’ needs, you may need to add functions to your ERP, which would increase the cost of the base product. For example, large manufacturing or distribution companies will need to augment base accounting and financial functions with capabilities such as inventory management, bills of material and shipping and receiving that most service companies wouldn’t need.
How Many Integrations and Customizations You Need
Every business is unique and needs some additional customizations to get the software operating with your existing processes. These will impact the base cost of your ERP software.
Other factors that can affect the cost of your ERP system include:
- The complexity of your particular implementation
- The complexity of migrating data from your old system into the new system
- The number of external interfaces you need to support
- Transaction volume
- Training users on the new system
Your total cost of ownership includes a great deal of “hidden” on-going people costs, plus your annual maintenance fee. The hidden costs can vary widely, when budgeting expect to pay 1.5 to 2 times the base cost of the software implementation costs. With on-premise ERP systems, the annual maintenance fee is typically about 18% of the current list price of the software every year. This means you are probably repurchasing your existing system every 5-6 years.
Calculating Your ROI of Switching to a Cloud-Based ERP
Now that you have an idea of your total cost of ownership with your existing ERP, you can calculate amount you could save by switching to a modern ERP provider. Your ROI is based on reductions in cost as well as improved opportunities for your business that are the result of an effective ERP system.
- With cloud ERP pricing, you typically don’t buy the software licenses or hardware.
- The annual fee of a cloud-based ERP covers license, hardware costs and IT expenses. This means lower up-front costs and lower ongoing IT expenses.
Increased Revenue Opportunities
- Increased sales due to better customer service, improved quality, better on-time delivery and shorter lead time.
- Sales and margin improvements due to faster time-to-market for new products and product variants, cost reductions.
Cost-Saving Characteristics of Acumatica’s Cloud-Based ERP Software
Instead of enforcing a “one-size-fits-all” cost structure, Acumatica ERP pricing is determined by your needs and requirements. Acumatica takes out the user-based costs with their modern growth-friendly licensing. This pricing structure lets you add casual users, suppliers and customers without paying for additional licenses. Thus, your cost is based on the features and resources you use and not the number of users who access the system. Further, as a cloud-based ERP, with Acumatica there is no upfront cost to purchase the hardware or staff to maintain it.
Acumatica’s True Total Cost of Ownership Calculator
If you’ve gotten to this point and you’re looking for some cold, hard numbers, check out Acumatica’s ERP TCO calculator. This calculator is a tool for anyone researching ERP options to help weigh the costs and determine potential savings. Together, the Total Cost of Ownership (TCO) and the Return on Investment (ROI) measured by the calculator will offer the “True Cost” of implementing a new system and provide data to compare ERP vendors. For example, using this tool we calculated that by replacing the average legacy ERP system with a base-level Acumatica Cloud ERP solution you could save over $80,000 in costs over 5 years. To read more about how a real business saved significantly by switching to Acumatica, read ERP System Saves $84,240 Per Year with Process Automation.
We know switching ERP systems is a big decision. But the ERP TCO calculator is meant to take the fear out of the justification process and to shed light on the fact that maintaining a legacy system may cost you more in the long run.
Remember, the company you choose to implement your software dictates the success or failure of your software investment. At Aqurus, we’re passionate about providing superior ERP solutions and support.