ERP pricing is a tricky business: One of the most complicated and exasperating aspects of purchasing an ERP solution is trying to sort out your options based on function and the economics of purchase or rental.
ERP Hosting: SaaS Cloud, Hosted Cloud, or On-Premise?
Recently, I was involved in helping a client with sorting out options between two upper middle market ERP solutions.
One solution, Infor Visual, offered only on premise or hosted in the cloud, AKA single tenant. The other vendor, Epicor, offered a pure cloud solution (AKA multitenant) with monthly SaaS rental pricing based on the number of users anticipated. The monthly price also included the annual maintenance fees of 20%. Implementation and training are paid up front as with any ERP purchase.
There is an assumption by the buyer that any cloud solution would save them from needing an on-staff IT specialist. This is not assured but, typically, a company under $40M, for example, can get by with a part time IT person or someone who already is employed in the company and has the skills to handle occasional IT work.
But even with cloud hosting provided with Infor Visual you are going to pay a couple of thousand dollars a month for hosting services so that partially wipes out the saving of not needing an IT specialist on staff.
Complications Involved on Comparing ERP Pricing
Comparing apples to apples on applications and pricing is a can of worms. This is because vendors have different ways of getting things done. Some apps are just part of their system, while other apps are supplied by third parties. A good example is the case of DOD contractors who need DCAA billing: some vendors offer it out of the box (Visual) while others (Epicor) have most of it but must write some custom code to get everything required. The custom code price is per hour so you cannot be sure of what the final cost might be if things don’t go as planned.
One vendor may offer everything your need for a CAD interface, specialized Quality Management or Configuration Control while other vendors may require an expensive third party add-on.
ERP Pricing: Before, During and After Implementation
Vendors are reluctant to talk pricing early in the process. But if pushed hard enough, most will provide a low ball number with lots of assumptions about what that gets you. Some will say they will match anything their competitors propose.
One of the issues with this is the final quote will look good but there may be moving parts on items like data conversion, training, and custom changes to meet special requirements. This is where some vendors who come in with a low quote can make it up on implementation and training which is almost always based on an hourly rate. They cannot afford to fix price those items due to the potential screw ups by the client or surprise changes to the scope of the installation.
It is usually possible to negotiate another 20% discount after getting a preliminary quote. Competition is fierce in the ERP market and vendors will often sell at a break-even level just to get the long term maintenance fees which is where most vendors get the majority of their profit.
Cash Flow, ROI Need to be Part of Your Decision
One of the advantages of SaaS pricing is that you do have a lower cash outflow for the first five years. After that, the overall cash outlay tends to be pretty close except with a true SaaS solution you rent the software forever or at least until you decide to buy it – usually with some percentage credit given for rental payments.
Smaller companies who make a purchase can often get their upfront costs covered through more effective asset and cash flow management within two years and only have to worry about monthly licensing after that. This is especially helpful for fast growing companies who need the ability to expand their ERP capabilities quickly.
Ongoing Maintenance and Vendor Support Needs
Maintenance is charged by vendors based on the current retail price of the applications so that can go up. In addition, if certain applications are purchased to support special analytical reporting, the buyer may find they will need the vendor to write the report for them. An example is a special application supplied by Epicor called XL Connect where data from Epicor is exported to Excel for special purpose analytical work. Some users can set up these reports themselves, others cannot.
ERP pricing issues like these need to be thought out and discussed with the vendor before the software purchase or leasing agreement is made. Thinking of all the contingencies for implementation and being honest about your in-house capabilities can save you a lot of grief and a lot of money.