Bringing an enterprise resource planning (ERP) system into a business can be rewarding, but it’s also challenging: It requires a lot more planning than just calling vendors and purchasing software off the shelf. It also represents a sizable business investment. Recent advancements in cloud technology, however, have made ERP software more accessible — and more affordable — for small and medium-sized businesses. But even “affordable” ERP projects can be costly, relatively speaking.

Because vendor prices are based on such a wide range of models, variables and customizable features, this article explores exactly what goes into an ERP platform’s total price. It can help canny business leaders to select their ideal system — while keeping costs in check.

How Does ERP Pricing Work?

ERP pricing approaches vary from vendor to vendor, making price estimates and direct comparisons difficult. However, most ERP vendors price their software based on a few universal factors, including the organization’s size, expected number of users and software licensing terms. Additionally, many ERPs can be equipped with customizable functionality and modules — also at variable prices — that provide business leaders with the specific tools they may need to best run their operations.

For many businesses, especially those implementing their first ERP, a major price driver is the deployment method. On-premises ERP systems typically require higher up-front costs to build the technology infrastructure that the system requires. Cloud-based systems, on the other hand, generally follow a monthly or annual subscription model, so they cost significantly less initially but have the potential to cost more in the long run. On-premises versus cloud ERP systems also differ in other ways, such as in their scalability and maintenance costs, factors that are discussed in more detail below.

Key Takeaways

  • ERP vendors typically base their prices on the size of the customer’s business and the complexity of the implementation, offering pricing models that cater to different business’s needs.
  • To calculate the total cost of ownership (TCO) for an ERP system, businesses must look past initial licensing prices and consider a variety of factors that influence the long-term cost.
  • Businesses often spend as much, if not more, on those ongoing costs than on the initial licensing and implementation.
  • Cloud-based ERP systems often involve a lower initial investment than on-premises systems, which means businesses can realize a quicker return on their investment.

ERP Pricing Explained

An ERP system’s total cost adds up to more than the amount on the vendor’s price tag. Its total cost of ownership (TCO) includes all direct and indirect costs associated with the ERP system during its life cycle. Direct costs include the basic software license purchase, initial deployment costs and ongoing operational expenses. Indirect costs may include employee training and potential business interruptions that may arise during the system installation and transition. Indirect expenses are often overlooked when calculating ERP prices but can significantly raise the total cost.

TCO is a detailed metric for comparing ERP options that showcases the system’s real impact on an organization’s resources over time, beyond the initial expenditure. Focusing on TCO when comparing ERP systems helps business leaders choose a system that aligns with their strategic goals and delivers enduring value.

ERP Pricing Models

The two most common licensing models for ERP software are perpetual licensing and subscription plans. When choosing between these models, business leaders must consider both the immediate strain on resources and how growth will bear upon ERP costs as the business’s organizational structure evolves.

Perpetual Licensing

When a business buys a perpetual license, it pays one up-front price for long-term — often indefinite — software access. Even with a perpetual license, however, there may be additional fees for vendor-provided maintenance or support. This pricing model is frequently associated with on-premises deployments and is popular with organizations that prefer to maintain control over their IT environment. Despite its substantial initial investment, perpetual licensing often results in long-term savings because it avoids many of the ongoing costs associated with subscriptions. Still, perpetual licensing’s up-front cost steers many small businesses with limited resources to opt instead for subscription models.

Subscription Plans

With the rise of cloud software, many ERP providers now offer subscription-based licensing. These plans often focus on operational agility and scalability, allowing businesses to adapt their ERP use to evolving needs, over time. In a subscription model, the customer pays a recurring fee for the software license and, in many cases, the cloud-hosted resources that run the software. With this subscription, businesses pay for more than just licensing, however, as the fee typically also covers upkeep and support. By leaving the system’s maintenance and repair to the experts that know the system best, businesses can reduce the stress on internal IT staff and focus more on using the system than maintaining it.

Factors That Influence ERP Pricing

Understanding the factors that influence an ERP system’s TCO is essential. It gives business leaders the information they need, first to develop a baseline of requirements to better compare quotes from various vendors, then to find the optimal balance between costs and benefits and, ultimately, to more effectively allocate their resources during deployment. Here are 13 common factors to consider.

erp pricing
Many factors contribute to an ERP solution’s total cost of ownership. Businesses should consider them all to help pick the system that best serves their current and future needs.
  • Licensing model: ERP vendors use different licensing models. Some charge per user, others charge a flat rate based on the features and modules integrated into the system. Some even charge based on the number of transactions processed during a given period. Businesses should choose the model that best suits them to avoid paying extra for features that they will not use nor benefit from.
  • Deployment type: How the ERP system is deployed can have a major impact on the price — both initially and over time. The three main deployment options are on premises, cloud-based and hybrid.
    • On-premises ERP systems tend to require large up-front costs to purchase the software, servers, storage and any other hardware needed to run the system. They may also require dedicated IT staff to maintain and upgrade the system, as needed.
    • Cloud-based ERP systems generally follow a subscription model, which minimizes the up-front costs. Because the software is hosted on the cloud, businesses may not need to purchase major infrastructure components to run the system, and the vendor will be responsible for much or all of the maintenance. Licensing costs are likely to increase as more users are added or more functions are integrated into the base software. In recent years, cloud-based ERP platforms have grown in popularity, with almost 97% of companies surveyed considering cloud-based solutions.
    • Hybrid ERP systems are a mix of the first two options and can take different forms. Since it is a two-tiered system, a company may prefer this model, for example, because an existing traditional ERP platform can be used for some corporate functions, while its cloud ERP system can support subsidiaries or other regional activities. Similarly, some businesses may decide to leverage an existing cloud-based ERP system for specific functions, like customer relationship management (CRM) or a better mobile experience for remote workers.
  • Number of users: Number of users is the most common licensing metric for determining ERP cost. It is usually based on “named” or “concurrent” users. The named approach limits businesses to a set number of specified accounts, regardless of how many employees are using the system at a given time. Under the concurrent users approach, the software license specifies a maximum number of users who can access the ERP system simultaneously, but the business has the ability to authorize a higher number of employee accounts. Concurrent licenses work well for international businesses, for example, that have workers who access the system from different time zones, rather than during the same time frame.
  • Business size and complexity: The nature of the business, including its size and structure, determines the number of modules and features the organization will need in its ERP system. Naturally, additional functionality raises the price. While a small business may have limited requirements for an ERP system, a large multinational corporation with multiple divisions will likely require significantly more complex systems to operate efficiently.
  • Industry-specific requirements: While most ERP systems will include some near-universal requirements, such as general ledger and payroll functions, some industries have more specific business requirements. For example, manufacturers will likely require specialized supply chain management software to provide a unified view of the supply chain, in addition to the more standard financial information. These additional requirements are often added to the vendor’s ERP package at an additional cost.
  • Customization and integration: ERP systems usually meet only some of a business’s requirements “out of the box.” The most flexible cloud-based ERPs can satisfy the rest through configuration options, but many businesses need to customize the system to address all their needs. Not surprisingly, customizations can add significant cost to an ERP deployment, though the exact price adjustment will depend on the functionality required, as well as the system it’s being built on. Likewise, integrating existing systems, such as an external CRM or business intelligence platform, adds cost and complexity to an ERP system. Because of this, many ERP vendors offer hands-on demos and consultations before setting prices, so potential buyers can get a clearer idea of their customization and integration needs.
  • Modules and features: Many vendors charge differently depending on the modules the business plans to add to their ERP system. Modules plug into the core ERP and can add capabilities for everything from more advanced financials to inventory management, manufacturing, human resources and CRM. ERP vendors may include these add-on modules in industry-specific pricing tiers or sell them as standalone additions to the license’s base price. Businesses should compare their specific needs against the investment they are willing to make.
  • Data migration and implementation: Transferring data from existing systems into the new system is a major part of any ERP implementation. Most vendors have a process for this, but additional costs may be associated with that effort, depending on the scope of the information migration. To ensure accuracy, many businesses hire external consultants or data validation teams to audit their records before migration, often adding an extra cost.
  • Training and support: Businesses and staff must understand their system’s capabilities to maximize its benefits. Vendors may offer training to a customer’s employees, so that IT teams can effectively implement and maintain the ERP and so that business managers and staff can use it to enhance their work. Vendors often bundle these training and consulting services into the cost of licensing or, more frequently, engage a value-added reseller partner.
  • Compliance and security features: Some industries, including finance, healthcare and manufacturing, must follow specific regulations from governments and industry groups. Businesses of any size must comply with all relevant rules, or they can face hefty fines, legal penalties and a loss of customer trust. ERP systems can ease a business’s regulatory compliance burden and provide a dashboard into how its operations align with compliance requirements — but only if the system is configured with the relevant capabilities, which may come at an additional price.
  • Infrastructure costs: An ERP system’s infrastructure costs include servers, hard drives and, potentially, replacement of older desktop or laptop computers with more powerful machines capable of running the new software. Additionally, businesses will need an IT team capable of managing the system, an especially important factor for businesses with on-premises ERP systems. And, after the system is implemented, the business must consider the ongoing costs of maintaining and replacing the infrastructure as it ages. For cloud-based systems, the vendor is generally responsible for the infrastructure costs associated with running the ERP system in its cloud. It also customarily will test new features and explain any required customer infrastructure upgrades before deploying features that require them.
  • Operating system and platform: Many vendors of on-premises ERP systems have their own certification processes to determine which operating systems and database software versions work best with their system. These certifications may conflict with the business’s latest operating system versions, leading to data security gaps, cybersecurity risks and potential issues with insurance providers. To reconcile these gaps, businesses may need to invest in third-party services or operating system/hardware upgrades.
  • Third-party add-ons and services: While base ERP systems may offer the core functionality businesses need to effectively manage operations, extra-cost add-on modules can enhance specific areas, such as inventory or warehouse management systems. And even if an ERP vendor does not offer the specific modules a business is looking for, it may be able to integrate authorized third-party vendors to fill the gaps, helping businesses get the most out of their software investment.

12 Steps to Negotiate ERP Pricing

Negotiating ERP pricing is not just about getting a lower price; it’s about securing a solution that maximizes return on investment (ROI), while aligning with the business’s overall strategic goals. This process takes time: The average company spends 17 weeks selecting an ERP, and larger companies take even longer. By understanding the nuances of ERP negotiations, business leaders can successfully navigate the ERP buying process and make certain they get the right solution, for the right price. The following 12 steps can help businesses identify areas where they can save money and, equally important, negotiate terms that go beyond immediate costs to consider the broader effects of the ERP on the business’s future.

1. Gather Detailed Requirements

Before buying an ERP system, businesses should develop a comprehensive picture of their organization and how an ERP solution will address their needs. With this review in hand, leaders can make informed vendor decisions and set realistic timelines and ROI expectations. Beyond financials, businesses with detailed requirements can better align ERP choices with operational goals and avoid unnecessary features. After gathering these requirements, businesses should explicitly define and document them for future reference during the rest of the negotiating process.

2. Conduct Market Research and Vendor Selection

Not every vendor offers the same features or prices. Businesses should conduct market research to identify the vendors that can satisfy their requirements. Some vendors may emphasize key features in their core product, while others may offer them as additional add-on modules. Therefore, it’s important to consider the entirety of a vendor’s offerings, often contextualized with reference to the vendor’s track record and customer testimonials. Additional factors to weigh when narrowing down options and compiling a shortlist are user interface, scalability and integration capabilities.

3. Obtain and Compare Quotes

Many ERP vendors offer custom quotes based on the customer’s specific needs. Once a business has a list of potential vendors, it should contact each one to request demonstrations and obtain tailored price estimates. Though getting direct dollar-to-dollar comparisons may be challenging, a holistic ERP comparison can help businesses choose the solution that will work best for them. Due to the complexity of many ERP solutions, including differences in implementation, licensing, training, support and more, decision-makers should carefully consider every element of each quote before making their final selection.

4. Understand the Pricing Models

Beyond the initial cost of the software are the ins and outs of each vendor’s pricing model. Additional add-ons — or any lack thereof — can significantly affect prices. Add-ons may include annual support costs, software and security updates, per-user or per-transaction costs and more. Businesses should remember their maximum budget and consider how costs will scale over time before selecting a pricing model that they can be sure will align with both current strategies and future growth projections.

5. Negotiate Beyond Price

ERP buyers who negotiate only to get the lowest price may end up missing out on opportunities to add value. “Price/performance” is an oft-used phrase that embodies this concept — namely, that the customer’s goal should be to negotiate the highest ratio of performance, or value, per dollar of price. While initial cost is a major factor when selecting an ERP, business leaders must consider functionality and future expenses, as well. Over time, maintenance and service costs frequently dwarf the initial sticker price, especially for large firms, and even small reductions in ongoing costs can yield big returns over the ERP’s lifetime. During negotiation, buyers can benefit from more than just price reductions by seeking better terms around support, training, data migration, guaranteed response time and any other relevant factors that the business values.

6. Leverage Competition

In any negotiation, having more than one purchase option gives the buyer negotiating leverage. To get the best terms, a business may narrow its vendor focus to only two or three competitors to maintain that leverage and to make comparisons simpler. Vendors will likely have different areas of flexibility in their contracts; finding and exploiting those areas can lead to savings, additional services or better support.

7. Negotiate Payment Terms and Discounts

Even in the face of non-negotiable prices, businesses may be able to negotiate payment terms. They can often arrange a multiyear contract to lock in prices, early payment discounts or add-ons and service packages. And because one business may prefer to capitalize initial expenses while another prefers all costs to be operating expenses, vendors can often find ways to accommodate either scenario. Furthermore, businesses should consider their cash flow when choosing their optimal payment plan. For example, a seasonal business may benefit from a yearly payment during their busy season, rather than monthly payments that can strain resources during slow periods.

8. Plan for the Future

An ERP solution is not a simple, one-time purchase; it is a scalable, long-term investment that should grow and evolve alongside the business. Therefore, it is essential for businesses to consider their growth path and choose a solution that fits their future. For example, a domestic business with an eye on foreign expansion should choose a solution with regional customizability and features that support international business. Similarly, a business that plans to expand their workforce should consider how increased user loads will impact the per-user rate or system performance. Business leaders should discuss these plans during negotiation to ensure that the right solution for today’s market is scalable to meet tomorrow’s needs.

9. Have Legal Review Everything

Software agreements, especially large and complex ERP contracts, are legal documents, so they should be reviewed by an attorney or legal team before they are signed. Businesses often work with law firms that specialize in software contracts to safeguard against potential legal pitfalls and ensure that the terms of the agreement are clear, enforceable and aligned with the business’s objectives.

10. Perform Reference Checks

Vendors customarily provide customer references and testimonials — and too many buyers ignore them, assuming that the vendor would never connect you with an unhappy customer. While that’s true, even the best installations are likely to have hit speed bumps along the road, so proper diligence with reference checks can help would-be customers anticipate similar issues and gain a realistic sense of what it would be like to work with that vendor. Even customers from other industries can give helpful insights into why they chose a particular vendor and any relevant pain points. These checks not only help validate the vendor’s claims but also give businesses real-world advice on how to implement and use their new ERP system.

11. Prep Your Negotiation Stance

As the deal nears completion, buyers must decide which terms are deal-breakers and which aren’t. This explicit planning ensures that all team members present a unified front and can make quick, informed decisions during the final negotiations.

12. Ensure Terms Are Documented

Once contracts are signed and the project begins, make sure your project and implementation teams know the essential contractual terms. ERP implementation and management is a complex and detailed process. A comprehensive record minimizes misunderstandings and ensures that all team members know what services and products they should expect from the vendor — and which ones the business will have to provide separately. Bringing an entire organization up to speed on a new ERP system can be challenging, so clear terms and timelines are crucial to help smooth out rough edges as the project continues.

9 Non-Monetary ERP Costs to Consider

ERP projects typically include several complex and time-consuming phases: analysis, design, implementation, deployment and maintenance. Each phase carries a variety of costs, many of them non-monetary. This section explores nine hidden costs business leaders should expect beyond the ERP platform’s price tag.

1. Time Investment

To effectively implement an ERP system, businesses should spend a great deal of time in planning meetings, gathering requirements, training staff and making decisions that cover everything from broad strategies to detailed minutiae. This time commitment directly affects staff who could have been working on other projects; therefore, businesses must consider downtime and resource dedication when calculating the total cost of a new ERP system.

2. Change Management

Deploying a new ERP system almost always requires changes to long-standing business processes. A well-defined ERP change management plan will help businesses document and integrate those changes throughout the organization to help overcome potential employee resistance. Unfortunately, human nature is such that investment in a change management plan is necessary, not optional — so it becomes another cost to factor into the total.

3. Training and Education

Businesses must be sure that all users and administrators can effectively use the ERP system to enhance productivity and performance. Though many vendors offer implementation training, businesses will likely need an ongoing training plan for new employees and administrators as business requirements change and the system’s capabilities evolve.

4. Operational Disruptions

System cutovers are rarely seamless transitions. Even the smoothest ERP rollout will likely encounter some challenges and operational disruptions. Businesses should develop contingency plans to minimize losses from downtime and slowdowns. These plans could include a temporary paper system or short-term dual use of both the legacy and new systems, for example.

5. Data Migration Challenges

During implementation, companies transfer vast amounts of data into their new ERP system, including master vendor lists and historical sales reports. During this migration, businesses may discover data quality issues, such as missing or duplicated records. To reconcile these errors, businesses can use data validation tools, often built into the new ERP system itself. However, this reconciliation may require additional time and resources and should be considered when planning the project’s timeline and budget.

6. Customization and Integration

One of an ERP system’s greatest strengths also represents one of its biggest challenges — customization. Customizations must be carefully implemented, as they can increase costs, cause bugs and complicate upgrades and maintenance. Likewise, integrating ERP systems with third-party software can produce similar costs and complications. Plus, once an ERP is customized, the customizations often make it even more complicated to integrate with other software. Businesses should carefully plan any customizations and integrations, to be sure they balance functionality with system stability and costs.

7. Cultural Impact

When a business moves its organization to an ERP system, it will likely overhaul many processes and workflows. Without buy-in from the front-line employees who directly deal with these changes, productivity and employee morale can both suffer. This is where the change management plan mentioned above becomes essential. Businesses can reassure staff, through training and clear timelines, throughout the transition. Through open transparency, leaders and managers can show staff that, even as the company culture evolves, worker satisfaction and job security are still top priorities.

8. Risk of Implementation Failure

Given all the time and money that goes into a new ERP system, businesses will likely want to take steps to ensure that they recoup that investment. To mitigate the risk of implementation failure, businesses can create a robust project management framework — complete with contingency plans — that follows relevant regulatory guidelines and safeguards data integrity. Business leaders and implementation managers should also keep all stakeholders and staff informed on progress updates and any complications as they occur to minimize the risk of compounding problems or missing serious issues.

9. Support and Maintenance

Support and maintenance create ongoing challenges for businesses, especially those with on-premises ERP systems. Businesses and their IT teams should vigilantly monitor and update operating systems, databases and software to maintain up-to-date security standards and eliminate bugs. Some vendors may include these services in their subscription fees or as additional add-ons, while others require businesses to handle support internally. Wherever the responsibility lies, businesses must understand their specific support needs and efficiently allocate staff and resources to meet them.

Beyond Pricing: How to Choose the Right ERP

Choosing the right ERP system is a strategic decision that goes beyond comparing costs. It’s about selecting a system that will streamline operations, drive growth and adapt to future business changes. Therefore, before making their choice, businesses should consider how the new system will impact the organization. What will long-term support entail and will it require major staffing or infrastructure investments? Will the software require extensive customization or add-ons, adding complexity — and cost — to an already intricate system? Is the system scalable, and, if so, will the pricing model still fit with the business’s expected future cash flow?

More specifically, the best selection processes start with a detailed evaluation of the company’s needs and a clear definition of success to ensure that the ERP aligns with both current and future goals. Next, it’s important to affirm compatibility with existing software and a functional match with the organization’s existing processes. Engaging stakeholders across the company early in the selection process is crucial not only for securing support but also for making certain that the system aligns with those existing processes or, at least, that they can be suitably altered. A well-thought-out implementation plan — one that includes rigorous procedures for migrating clean data — should be developed collaboratively with the vendor candidates before signing on the dotted line.

Before finalizing their decision, business leaders should also consider their specific situation and priorities. A business with a small IT team, for example, may opt for a cloud-based ERP, rather than an on-premises deployment, so that the IT team can avoid spending time on hardware installation and setup.

By carefully considering these elements, companies can choose an ERP system that not only addresses their immediate requirements but is also capable of scaling to support future expansion.

Discover the ROI of NetSuite ERP

No two businesses are exactly the same, so they’re likely to use their ERP systems in unique ways, too — and to factor different considerations into ERP pricing. With NetSuite’s cloud-based ERP system, businesses can enhance their ROI by bypassing the heavy infrastructure investments typically associated with on-premises systems. And NetSuite prides itself on further assisting small businesses to achieve their ROI goals by shortening the time to implementation. With NetSuite, businesses can access a customizable suite of tools for finance, inventory, billing and more — anytime and anywhere. NetSuite’s centralized data architecture boosts performance by minimizing miscommunication and facilitating business process automation.

NetSuite’s ERP is a scalable solution, giving businesses the agility they need to adapt to their evolving needs as they grow. And with tailored, customer-specific pricing, NetSuite gives businesses control over costs by aligning their ERP strategy with their overall budget goals. This personalized pricing model, combined with NetSuite’s robust capabilities, gives business leaders the ability to maximize ROI and drive long-term success, while staying true to their business’s vision.

Navigating the complexities of ERP pricing is a multifaceted challenge that requires a strategic approach. To understand the total cost of ownership of an ERP system, business leaders must carefully consider several cost drivers, from initial implementation to ongoing support and maintenance expenses. Because ERP vendors offer diverse products, payment plans and deployment options, informed business leaders will be better prepared to customize their systems and balance their budgets in concordance with their long-term growth strategies.

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ERP Pricing FAQs

How do you calculate ERP cost?

Businesses must consider the total cost of ownership to calculate the true cost of an ERP system. This includes up-front expenses, such as initial software licensing and infrastructure, as well as ongoing costs, such as support and maintenance. These costs should also include indirect expenses, such as expected business downtime, change management and staff training. Not every ERP system incurs the same costs; cloud-based systems typically have lower up-front costs but higher ongoing costs than on-premises systems, for example.

What is the cost of installing ERP?

ERP installation costs include software licensing, infrastructure, consulting fees, ongoing support and maintenance expenses. However, the total cost of installing an ERP system varies widely, based on several factors, including the deployment type, the number of users and any necessary customizations. In a perpetual license model, for example, businesses pay greater up-front costs, while subscription models may end up costing more over the long-term, depending on the system’s life cycle. Speaking very broadly, estimates range from the low-to-mid five figures for a small firm to millions for a complex enterprise.

What is ERP pricing?

Different ERP vendors have different pricing models, so it is critical that decision-makers understand the different factors that contribute to the total price. An ERP system’s price includes up-front implementation, ongoing maintenance costs, add-on packages and more. A comprehensive assessment of these factors helps businesses compare quotes, options and payment plans among vendors before making their decision.

Why are ERP systems so expensive?

ERP systems use complex software that integrates multiple business functions into a single, cohesive platform. These platforms are sophisticated business solutions with extensive capabilities and, therefore, are priced accordingly. However, these systems — and their pricing models — are generally customizable, allowing businesses to purchase systems that align with their overall priorities and to balance cost with potential return.