Tips for Estimating the Cost of ERP Implementation

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What You Should Know About the Cost of ERP Implementation

The overall cost of ERP implementation can vary depending on your business's size, type, and location. Additionally, the deployment of the software, whether on-premise or cloud-based software-as-service (SaaS), can also impact the cost and complexity of the project. The price can start from $200 per month for a few users and increase based on the number and types of users. However, some software solutions, such as ERP, offer unlimited licenses for users without additional cost, using only modular pricing. This is worth noting for small to large-scale enterprise businesses looking for a cost-effective ERP solution. In this post, we will provide guidelines for estimating the cost of ERP implementation and ongoing fees. A trusted technology partner like Clients First can provide a more accurate estimate.

Digital transformation is a priority among growing companies. According to TEC, 50% of companies plan to upgrade or purchase a new ERP system soon. Figuring out the cost of implementing an ERP system for your organization can be complex. Various factors come into play, such as the industry you operate in and the specific demands of your customers. Manufacturers typically face higher software and implementation costs than distributors, and the type of manufacturing process, whether make-to-order or repetitive, can also impact expenses. Similarly, industries like Professional Services and Field Services may incur higher overall ERP costs due to the complexity of their customer demands. Moreover, every implementation is unique, and factors like the desired system, organization size, functionality requirements, user access levels, and more will all influence the final cost.

Read this report to learn how Microsoft Dynamics 365 for Finance and Supply Chain Management makes it possible to:
  • Centralize and modernize your business.
  • Scale for ambitious growth and integrate Microsoft Dynamics 365 for Finance and Supply Chain
  • Management with existing systems for fast deployments.
  • Enhance experiences for the employees who use the technology most.
  • Lower IT costs, reduce the need for complex customizations and resolve major IT issues by moving to the cloud.
  • Gain critical, holistic insights with enhanced data through reporting and analysis capabilities.
  • Realize a greater return on your IT investment with increased operational efficiency, improved productivity, and more wholesale and retail profitability.

How much does Dynamics 365 cost

The Costs of ERP Implementation

The costs associated with implementing an ERP system can vary significantly based on factors such as the nature of the business and the country in which it operates. To give you an idea of what to expect, here is a rough estimate of implementation costs based on business size:

  • Small businesses: $10,000 - $150,000
  • Mid-sized businesses: $150,000 - $700,000
  • Large enterprises: $1 million - $10+ million

Implementing ERP software involves multiple expenses, and it's essential to note that the software cost itself is just a small fraction of the overall expenditures. Most of the costs are related to allocating internal and external human resources. However, choosing a cloud-based solution such as Dynamics 365 Finance & Supply Chain or Dynamics 365 Business Central can help reduce these costs. It is a cost-effective option for businesses, as it can lower the budget allocation mentioned earlier.

  • Database management system costs: 5% to 10%*
  • Infrastructure costs: 10% to 20%*
  • Software costs: 15% to 30%
  • Human resources costs: 40% to 60%

Moreover, annual recurring fees not included in the initial implementation will be paid. Check the recurrent fees carefully, as they will significantly affect your costs in the long term.

*this can be lowered or eliminated by a SaaS (software-as-a-service) deployment

3 Factors Affecting Your ERP Software Cost

Typically, software costs around 15% to 30% of the overall implementation cost. However, it's important to note that different vendors have pricing models so that the specific software costs can vary. A few key factors influence these costs.

  1. Number of users - The number of users needing to access the ERP will determine the price. The more users that need to access the ERP, the higher the licensing costs. Microsoft Dynamics employs a user count, but you can add or subtract users anytime in your contract through a CSP provider like Clients First.
  2. Industry and complexity - For organizations operating in specialized industries, finding an ERP system that adequately meets their needs can be challenging. This often leads to the need for extensive customization and the integration of third-party add-ons, resulting in increased costs. Manufacturers and MROs, in particular, face higher expenses due to the additional industry-specific requirements. Moreover, organizations with multiple business lines will also experience an impact on both software and implementation costs.
  3. Number of locations - The vendor may charge more if your organization operates in multiple locations. Check the vendor's pricing model to determine how multiple locations will affect your costs.

Cost of Database Management System

The licenses for the database management system used in the ERP are typically purchased separately from the system. Alternatively, they can be eliminated through a SaaS/Cloud deployment. The cost of these licenses is usually not included in the cost of implementation, as they are a different product made by a separate company, such as Microsoft.

Some vendors may use a free database system like MySQL, while others may recommend pricey systems. Most ERP systems either use Microsoft SQL Server or Oracle. Both databases are priced based on the number of users and/or number of servers (CPU).

Infrastructure Cost

The infrastructure cost of an ERP implementation encompasses the expenses associated with the necessary hardware. This includes backups, storage, desktop computers, and server infrastructure. The specific cost will vary depending on the company but typically falls within 10% to 20% of the overall cost of implementing the ERP system.

SaaS/Cloud solutions can typically run on any workstation or Internet-enabled device, and servers are not required to support the software. One thing to ask your ERP vendor is if their mobility includes offline database entry. Many ERP solutions have mobile apps, and some will and some won't work offline.

A reliable and high-performing Internet Service Provider (ISP) is essential for businesses transitioning to software as a service. Many companies opt for dual ISPs - one with robust availability, bandwidth, and hardwired connections, and another that is more cost-effective but delivered through alternative means, like satellite. This setup ensures a backup connection if one ISP experiences downtime, guaranteeing uninterrupted access to critical business applications.

Cost of Human Resources

Most of the ERP implementation budget cost goes to human resources. The cost of employees’ wages can account for more than 50% of the total implementation budget.

During the implementation phase of your ERP system, it is essential to ensure that your employees are on board and fully committed to the project. Some power users may need to dedicate more than half of their workweek to the new system. It might be helpful to hire temporary workers for employees involved in the ERP project to ensure that your regular business operations do not suffer. When selecting an ERP solution, it is advisable to choose one that is easy to use and widely adopted. Mainstream ERP solutions often have a larger pool of skilled workers, making finding and hiring the right talent for your implementation easier.

Consultation fees for external consultants typically range from $175 to over $225 per hour.

Recurring Costs

The recurring costs of an on-premise ERP will vary from vendor to vendor. Some vendors lower their implementation costs but charge high renewal prices. Others do the opposite. SaaS options are often month-to-month or have an annual renewal, which can typically increase by 3% to 10%.

For a standard perpetual or purchase of a license, the renewal fees for an ERP are 10% to 20% of the software costs. Therefore, if your ERP costs $1 million, your annual renewal fees will range between $100,000 and $200,000. 

A typical ERP installation for a mid-sized enterprise will range from $150,000 to $750,000. In this article, we focused on the typical implementation costs of Microsoft Dynamics. However, the information can also be used as a general guideline for determining the cost of implementing other ERP systems.

The Clients First Difference

Your business deserves a cutting-edge ERP solution – not a bleeding edge. Clients First is dedicated to providing the latest proven technology by the two software vendors that are both best-of-breed ERP solutions for ease of use and in supply chain ERP technology and functionality: Acumatica and Microsoft Dynamics 365 Business Central and Dynamics 365 for Finance and Supply Chain Management.

Industry-specific expertise – Clients First consultants have direct experience in the industries we support.  The Clients First Texas office is known for its vertical knowledge in manufacturing, job shops, maintenance, repair, and overhaul (MRO) for aviation or heavy equipment organizations. We also have customers in other industries, including make-to-order/engineering job shops, project manufacturing, field services, and wholesale distribution.

We’re a Microsoft Gold ERP Partner and a Certified Cloud Service Provider (CSP).

Contact us today! Email: Dallas/Fort Worth, Texas, or call us at 800.331.8382. We're located in Dallas, Texas and service companies worldwide.

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