Published on: December 26, 2017
Calculating the True Cost (and Value) of ERP
The true cost of anything can be difficult to calculate. For example, what is the true cost of your home? Is it the seller’s asking price, or the seller’s asking price plus your mortgage payments and interest, plus closing fees?
Even given these costs, the value you derive from owning a home usually outweighs the costs. Not only do you have a roof over your head, but you no longer have expensive rent. Also, the value of your home usually increases over time, building a solid nest egg for the future, should you need to sell it.
Now, let’s look at ERP—an enterprise resource planning system. ERP systems provide an effective and efficient way to manage your company’s data. Real-time ERP systems such as Acumatica ERP provide up to the minute data on your company’s operations. The cost on paper to implement any of these systems does not reflect its true costs, nor its true value. Let’s take a careful look at the true cost and value of installing an ERP system in your company.
Is an ERP Worth the Expense?
Trying to decide to replace an outdated legacy system with a modern ERP system is worth it—or not—is a decision all businesses frequently face. Advancing technology, increasing competition, and educated consumers all foster the need for businesses to calculate their ERP True Costs and decide whether they should choose a modern system over a legacy one. Acumatica’s ERP TCO & ROI calculator can help determine not only what the true ERP system cost is but is also a tool for picking the right ERP system for you and your business.
You’ve probably heard by now that legacy systems may no longer be the best choice for your business and how a modern, cloud-based ERP system can benefit you and your company. However, no matter how much you hear about the security, scalability, adaptability, and mobility of these systems, you also hear about something else: the expense. How much will a modern ERP system like Acumatica cost? This question alone can cause businesses to continue to rely on their existing legacy system. Perhaps you should be asking, how much is maintaining my legacy system costing me?
A Five-Year ERP Cost Analysis
We’ll answer this important question by defining the “True Cost”—what we like to call the ERP true costs—of an ERP system in this final post of our new three-post series where we discuss how important it is to balance ROI and TCO. Previously we have discussed both ROI and TCO which are the two parts of the justification equation. Read the blogs posts on how to get a true ROI calculation and how to get a true total cost of ownership calculation. You may be surprised at how much a system can cost over 5 years, but a new solution may provide enough benefits to deliver an ROI greater than the TCO; hence, both need to be estimated.
The True Cost of ERP
Mindover Software is passionate about getting small-to-mid-size businesses (SMBs) to recognize how cloud-based ERP systems can transform their operations. We understand that deciding not to implement a modern ERP system limits your growth potential. To see how doing nothing is possibly negatively affecting your business, please take a moment and download a recent Aberdeen Whitepaper, The Cost of Doing Nothing: Why You Can’t Afford to Sit on an ERP Software Decision.
Businesses that are looking to upgrade an existing ERP or implement a cloud-based one may already recognize that cloud applications can deliver an impressive ERP return on investment (ROI). They must also recognize that they need to calculate their Total Cost of Ownership (TCO) of their system to determine all costs associated with implementing a new system. TCO isn’t calculated by just the upfront and obvious costs such as hardware expenses, software license fees, IT staff, and initial implementation costs. It also includes hidden costs such as employee’s time and effort to implement the system, future system customizations, retraining, and upgrades to name a few.
The ERP ROI and ERP TCO, when calculated correctly, form the components of what we like to call the “true cost”—or ERP true costs—of implementing a typical, modern ERP system for SMBs. True cost is your ROI minus your TCO over five years.
ROI – TCO = True Cost
Because the 5 year TCO and ROI estimate is essential for making the right choice of ERP system, we came up with our own ERP TCO calculator to help you with your decision-making. While a similar type of calculator may be available through other vendors, Acumatica’s ERP TCO calculator gives you the opportunity to compare the offerings of all ERP systems, not just Acumatica’s. Plus, it is interactive and you can change the assumptions and variables to fit your unique situation. If you are struggling with concerns about implementing a new ERP system, the calculator can help ease your fears with facts.
Your ERP true costs, based on ROI and the information you provide for the ERP TCO calculator, are important; it gives you a clear picture of what to expect when you choose between maintaining your current system and purchasing a modern system.
Benefits from Updating Your ERP System
The intent of the ERP TCO calculator is to ease your concerns about the expense of a modern ERP system and to give you the chance to look at the benefits of all cloud-based ERP systems.
Here are a few of the many benefits of a modern ERP system:
- Adaptability to change business process to match a changing business
- Increased productivity by reducing data entry into multiple systems
- Streamlined processes by eliminating manual processes
- Integrated front and back office procedures for a complete view of the company
- Mobility to work anywhere, anytime or any device
- Customization of dashboards and reports to provide information for better decisions
- Collaboration with stakeholders outside your organization (supplies and customers)
With SaaS there are two more:
- Lower upfront costs with new deployment options such as SaaS
- And the system will grow with you, at your pace.
Let Go of Legacy Systems
Legacy systems have certain restrictions that can no longer be ignored. The maintenance costs alone can be 16%—20% of the current list price of the software, which means you’re buying it again every five or six years; or, worse yet, your system becomes discontinued and is no longer supported. Constant IT staff and support needs, aging hardware, and lack of mobility hinder your potential to grow your business.
Implementing a new ERP system can feel overwhelming. Let the professionals at Mindover Software help you choose from among many top ERP packages including Acumatica ERP. Contact us today for more information and an evaluation of total Acumatica cost.