How to Calculate the Total Cost of Ownership for Legacy vs Cloud ERP – TCO Calculator

If you are currently using a legacy ERP system, I bet you are paying a substantial amount of money to maintain it. Probably about the same as if you just replaced it. But you are not getting the benefits of a modern ERP system.

In the past when experts discussed the costs of a new ERP system, they referred to the initial license fees and the hardware costs. Occasionally a very low number would be added to “get the system up and running.”

Customers were misled into believing that was the total cost of the system and would not budget the appropriate amount of money for the full implementation, training and ongoing costs, including upgrades.

Now, after several generations of ERP, we understand that ERP costs are not just software and hardware.

However, with the price of the software and hardware going down it comes to light that the cost of providing the total infrastructure and ongoing people costs is very significant

To calculate the TOTAL Cost of Ownership (TCO) of your ERP system you need to include these 4 areas:

  1. Fees
  • For software license and annual maintenance
  1. People costs
  • For consultants and staff time to implement a new system
  1. Operating expenses
  • For maintaining or replacing:
    • Servers
    • System software
    • Networking equipment
    • User devices
  1. People costs
  • For contractors & staff for:
    • Hardware & networking
    • Software upgrades & bug fixes
    • Custom development
      (mobile & reporting)

Unfortunately, most TCO calculations stop at 1 & 2, they forget what it costs to maintain upgrade or replace servers, system software, networking equipment, and user devices. And it is usually a big surprise when people calculate the cost of supporting the infrastructure, supporting the software, and any customer development for mobile devices or simple reporting.

Based on this chart comparing Legacy vs SaaS Total Cost of Ownership:

  • In this example we are assuming the applications are full function financials, distribution, and CRM.
  • Over a five-year period there is no significant difference in the costs between maintaining a legacy ERP system and implementing a modern SaaS solution ERP system.
  • The legacy ERP is already in place and has been paid for. The first set of bars compare the legacy maintenance fee for the annual subscription fee to SaaS subscription.
  • The second set of bars show that there is a cost for implementing a new SaaS system.
  • The third set is the infrastructure costs. The cost for legacy system includes updating the hardware, system software, networking infrastructure and user devices. The cost of the SaaS is primarily user devices and networking infrastructure.
  • The last set of bars is the people cost for ongoing support. Since much of the support is handled by the SaaS provider obviously the cost of the legacy support is much higher.
  • In the end - there’s no significant difference over five years – to replace the legacy system.
  • Acumatica has a TCO Calculator designed to work with customers to determine the actual cost to maintain legacy applications versus moved to a new SaaS solution.

Try Out the Acumatica TCO Calculator

Cloud ERP has been proven to reduce costs in many ways because it:

  • Avoids upfront costs for all computing infrastructure such as hardware and data servers.
  • Reduces IT support services because IT is in the cloud.
  • Eliminates paying upfront for application software licenses.
  • Sets a fixed monthly rate so companies can use their cash on other business initiatives.

Your competitors are already evaluating or moving to the cloud. Do not get left behind.

Next Step

CAL Business Solutions is a Connecticut based Acumatica Partner with 30+ years of experience in the ERP industry.

When you are ready to compare the benefits and cost of your legacy system versus a modern Cloud ERP, we can help. We understand that this is a hard transition and we want to make it easy for you. Contact CAL Business Solutions. 860-485-0910 x4 or [email protected]

By CAL Business Solutions, Acumatica and Microsoft Dynamics GP Partner,

Follow us on Twitter: @CALERPNEWS


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