The true cost of ERP – on-premise vs the cloud

When considering what type of ERP software to use for your business, cost is always going to be an important factor. Whilst some companies choose to create their own business management systems from the ground up, the costs and complexity of this approach often negates any perceived benefits. Therefore most businesses will choose to purchase ERP software instead.
The two main types of ERP software on the market are on-premise ERP and cloud-based ERP. Cloud-based software has become much more widely adopted in the last few years, despite initial resistance to the technology and offers numerous benefits, not least of which is cost. Below is a comparison of the costs that need to be considered when looking at both on-premise and cloud-based ERP software.

On-premise ERP software

Implementation costs

When implementing on-premise ERP software, the cost will largely depend on the size of your business and the number of users that need access to the system. However, the main costs that need to be considered are related to hardware.
Do you already have your own server? If so, will you need to make improvements to cope with the new software? If you don’t already have the IT infrastructure in place, then on-premise can be very expensive.
Another question to ask is do you have staff on site with the expertise to manage and carry out the implementation, or would you prefer to work with a technology partner?

Ownership costs

Most on-premise ERP software will require a significant investment with regards to the initial purchase as well as setting up and maintaining it. Training and maintenance costs can add up very quickly.
Do you have staff with the time and skills to maintain the software, ensuring it’s working properly and dealing with any problems as soon as they arise? How much time and money can you afford to spend on this? What about the cost of items we take for granted such as anti-virus and the electricity your server will consume?
With the on-premise option, when things go wrong with your hardware, it is your responsibility to get it fixed as quickly as possible which leads to unexpected costs you weren’t planning for.

Upgrades

Making sure your software is up-to-date and that you have the latest version is vitally important to remaining competitive, so you must consider how long it will be until your software needs upgrading, and how much time, effort and money it will cost to keep it up to date.
Upgrading on-premise ERP software can take a considerable amount of time and investment, particularly if there have been customisations made to the software. Often, they will be wiped out and will have to be re-implemented on the new system, which equates to more money being spent. This is why many companies choose to avoid it all together and end up using outdated software, leaving them vulnerable to more agile competitors.

Customisation

It’s rare that an ERP system will come ready to use “out-of-the-box”. This means that some customisation will be required so that it’s optimised for your business. The cost of customisation with on-premise ERP software will again depend on the size of your business and the number of employees using the system; however, it can sometimes be a very difficult task and often requires expertise that you may not have in-house.
As mentioned above, consider if your customisations will need to be re-enacted when you upgrade – how much will this cost? If you don’t have the expertise in house to do the work, how much does your chosen partner charge you per hour?

Cloud-based ERP software

Implementation costs

As with on-premise software, the cost of implementation does largely depend on the number of users you have and the functionality you require. However, implementing a cloud-based ERP system is often significantly cheaper when compared to on-premise software. This is in large part because there is no physical implementation required.
The software is delivered via the internet so all you need is a decent internet connection. The rest of the time spent on the cloud ERP implementation phase is for configuring your solution to your business needs and ensuring it all runs smoothly.
As with on-premise, you need to consider if you have staff on site with the expertise to manage and carry out the implementation, or would you prefer to work with a technology partner?

Ownership costs

The ownership costs of cloud-based ERP software are minimal due to the fact that all IT infrastructure is maintained by the ERP host provider. This means that your staff can focus on growing the business rather than spending time on maintaining the system.
The good thing about cloud software is that it is paid on a predictable subscription basis, therefore you know where you stand and can better manage your cash flow.

Upgrades

Most cloud-based ERP software, such as NetSuite ERP, is upgraded automatically by the provider so it’s always up-to-date. You don’t have to worry about any additional costs for implementing the upgrades as is the case with on-premise ERP software, as it is included in the price.

Customisation

Cloud-based software is completely flexible, so you can easily add and remove functionality to create a truly bespoke piece of software. There are costs associated with adding functionality that doesn’t come as standard; however, any additional functionality you add will not be affected by the automatic updates so you can be confident that your software won’t need re-customising as soon as an update takes place.
If you would like to know more about cloud ERP tools and how they can help your company grow, or if you would like to know more about NetSuite ERP, please don’t hesitate to get in touch with our team of experts.
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Eva Caballero
NoBlue
[email protected]

(+34) 660 10 87 20
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