Selecting ERP Software – Best Practices – Setting the budget

The first thing many companies do is decide on the budget for a software project. At a high level, I mean; round figures like $5,000, $50,000 or $500,000. That’s a good place to start. But how do you set a budget? Should you go high, low, or reasonable?

Software budgets based on industry surveys

Before we even talk numbers, we need to set the scope. That is, we need to know what we’re talking about in terms of software. Let’s pick something fairly common: distribution or wholesale software. That would include accounting (general ledger, accounts payable, and accounts receivable) as well as operations (inventory, order entry, and purchase orders). For basic, mid-range software you can generally expect to invest between $2,000 and $3,000 per user for software. I’m not talking about the low-end stuff that leaves out a lot of features like pricing, serial numbers, or multiple warehouses. I’m talking about the baseline features that almost every reasonable contender in the mid-market has.

So let’s pick the middle of this range as the price: $2,500 per user. But that’s for software purchase (buying the software). And there will also likely be an annual fee to the software provider for upgrades and maintenance. But what about software in the cloud?

Cloud software pricing

Cloud software pricing is all over the place. Most mid-market solutions run in the range from $125 to $200 per user per month. That includes the infrastructure (Windows, SQL Server, setup, security, etc.) as well as the software license. It can be more; it can be less. This is a decent range. And it usually includes the software maintenance; sometimes it includes upgrades.

What else should be included?

The numbers above include only software (or in the case of the cloud, software plus what you need to run it). There are three other items you’ll want to consider in your budget:

  • Data conversion. This is the cost of moving data from your current system to the new system. For some things like inventory items and customers, it can be pretty simple. For other things  like order history, it can be very difficult. Getting the data into the new software and getting it out of the old software are often straightforward. Cleaning up the data from the old system is where much of the effort lies.
  • Implementation and Training. Implementation is picking the right options and setting up the right processes to make the software work in your business. It also includes the technical setup of the software. Training is for the people who will be using the system.
  • Customization. Depending on the software and how your business runs, you may need customization. This could be as simple as creating a couple of reports. It could be as complex as developing major features for your system.

Industry surveys have shown that these three components generally run from 1 to 4 times the purchase price of the software. Data conversion and customization tend to increase the cost.

Can you do it for less?

Yes, it can be done for less. We have developed a system that can substantially reduce the investment in implementation. However, for most mid-market systems, companies will at least need an employee with recent experience in implementing ERP software.

In the next post, we’ll discuss the importance of setting a reasonable budget.