When selecting a new ERP system, carefully understanding and comparing the costs of each product is critical. ERP pricing can be very complex, and vendors often hide the true costs of their products in the hope of closing a deal faster. In this article, we’ll outline just a few of the areas where asking questions and gaining a full understanding of your options can save you money in the long term.
Understand what happens when your ERP contract renews.
An all-too-common scenario in the ERP world is the “hostage negotiation” at contract renewal time. Because changing ERP systems is a difficult endeavor, vendors will often provide enticingly low pricing for the first year of the contract, only to aggressively renegotiate their pricing when the contract renews.
To avoid this scenario, it’s important to understand your vendor’s pricing practices. Good questions to ask include:
- Will my price change at contract renewal? If so, by how much?
- What percentage of your customers received price increases last year?
- If discounts are applied for our first year, will those discounts carry forward into future years?
- Can you lock in our first-year pricing for a longer term contract?
It’s also helpful to talk pricing when speaking to an implementation partner or reference customer – or better yet, anyone you know personally who uses the same system. Get an understanding of what to expect when contract renewals occur.
Understand and compare Total Cost of Ownership (TCO) across systems.
Unfortunately, comparing ERP systems can be a lot like comparing apples and oranges. In many cases, licensing and implementation costs barely scratch the surface when it comes to costs to keep a system up and running.
When comparing vendors, consider all the costs that will play into the day-to-day operation of your product, including:
- ERP software licenses
- ERP software technical support
- ERP software updates/upgrades
- Emergency on-call support
- EDI services
- Cost of any necessary partner products
- Cost of integrations
- For on-premise or “private cloud” products:
- Hardware – system servers, database servers, backup servers
- Skilled IT resources to keep these resources secure, patched, and up-to-date
- Offsite backups and disaster recovery capabilities
Consider flexibility in user licensing models.
ERP vendors use a wide variety of pricing models, but most base their pricing either on named users (the number of user accounts that are set up in the system) or concurrent users (the number of users who may be logged in at one time).
When computing your total cost of ownership, it’s important to consider how flexible the licensing scheme is. In many scenarios, a more flexible licensing arrangement will allow for significant savings in scenarios like these:
- During the implementation process – especially the early phases prior to end user training – you’ll have far fewer users logging in. Will your vendor require that you pay for all licenses upfront, or can you add more after implementation?
- If your business is seasonal, will you need to pay for licenses 365 days a year that you’ll only use during a few select months?
- What about users who log in infrequently – perhaps a C-suite executive, board member, or tax accountant who needs occasional access, but won’t be logging in every month?
Avoid solutions that require multiple partner products.
Many ERP solutions require a plethora of third-party products to achieve customers’ goals. In many cases, software and services are required from third-party vendors to achieve standard business needs, like EDI, warehouse management, or integrations with shipping carriers or e-commerce systems.
However, these partner products can add unnecessary uncertainty to your total cost of ownership. Third-party services are often turnkey software products that you pay for on a month-to-month basis, leaving you open to sudden and unexpected price increases.
When doing due diligence on a product that will require third-party solutions, consider the risk factor of each of these solutions. Are the partner products needed for mission-critical tasks? If so, ensure there’s a backup plan in case of a price hike. If a partner product is required, ensure there are other reasonably-priced partner products for your system of choice, so you can switch if needed.
…yes, there’s a better way!
At Bizowie Cloud ERP, we’re on a mission to improve the ERP experience. One of the ways we do that is by being as upfront and transparent as we can about our pricing. When working with us, you can expect that:
- Your price quote will be easy to understand, and usually will fit on a single page
- Our “flex pricing” model means you only pay for users who are active during the billing period – no charge for unused licenses
- Quoted pricing is the pricing in your contract – no “first year discounts” or hidden fees
- Our contract includes a modest annual increase to keep up with inflation, instead of annual renegotiations
- Technical support, hosting, backups, disaster recovery, and 24x7x365 monitoring are all included as part of your licenses