ERP Cost Breakdown - How Much Does ERP Cost

Bulbul Ahmed

Strategic Transformation Leader | ERP, IT & Enterprise Solution Project Manager | Master Business Analyst | Management Consultant | Driving Innovation Through Process Optimization, Culture Development, and Automation Technology | 28 January, 2019 (Monday)View 2388



ERP Costs in 3 Categories

Although there are many different costs involve in ERP implementation, those can be grouped into three categories.

Category A: Software Cost

The ERP software is a composite of Applications and Database. It may contain some 3rd-party add-on applications too.

The Applications and Database require 2 types of costs

  1. License cost  - normally paid one time while purchasing or installing
  2. Maintenance service or subscription cost - usually paid once every year

Category B: Hardware Cost

There are several hardware requires for running ERP Solution.

  1. Computers and Printers cost - you may need to buy some if you already don't have enough
  2. Network Devices (Routers, Switches etc.) cost - if network not available in your company
  3. Server cost - if you are implementing ERP on-premises, not on-cloud

Category C: Consultancy Cost

The ERP vendor provides software as well as the consultants. The consultants do a lot of work to complete the project. Here is a list of costs we have to pay related to the consultancy.

  1. Travel & Accommodation​ cost
  2. Software Installation​ cost
  3. Software Configuration​ cost
  4. Customization​ cost
  5. Report Development​ cost
  6. System Integration​ cost
  7. User Training​ cost
  8. Data Migration cost

Which one is the biggest cost of ERP?

Many people think that Software License cost is the biggest cost of ERP. But they are totally wrong.

Here is the real scenario of the 3 categories…

  1. Software (Application + Database) cost: 20% - 30%
  2. Hardware cost: 5% - 15%
  3. Consultancy cost: 60% - 70%

Consultants take money for every moment they spend

The consultants charge money hourly basis. They cost $50 to $200 per hour.

  • It doesn't matter how efficient they are, they will take money for each moment they spend on your project.
  • If the consultant don't understand the system well (which is a very common scenario) and wastes time doing wrong configuration and re-doing the configuration again, still the consultant will charge the same amount of money for each second he/she spent.

Consultancy cost is never-ending

The Software License cost (Category A) and Hardware cost (Category B) are paid only in the beginning of the implementation. The maintenance cost is also not much comparing with the others.

But the Consultancy cost (Category C) occurs not only before go-live and but also 2-5 years after go-live!

If your ERP implementation takes 2 years, then you will have to pay hourly consultancy costs during these 2 years. This is not the end. You will need new features, new customizations, new reports every month you spend on ERP in next 2-5 years or even more. Therefore consultancy cost is never-ending.

If you calculate the total cost spent in 5 years from the day-1 of ERP project, you will see that more than 60% cost is gone for Consultancy.

There is a way to reduce cost 50%

Yes, don't be hopeless. There is a way to reduce the consultancy cost and save 50% cost of the ERP implementation. Following that way, you will not only save cost, but also ensure successful & sustaining ERP. Contact us to know.

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