How Much Does It Cost To Develop ERP Software?

Determining ERP software pricing starts with learning about the requirements of the client. Business managers must keep in mind that aside from the software and its implementation, there is also the total cost of ownership (TCO) that has to be taken into account. 

Before we get into details, it is important to understand that different software types are priced differently. For the sake of this article, we will look at the costs of the two most common types of ERP software, a ready-made and a custom-designed one.

➣ A Ready-made System

An average cost of a ready-made ERP unit usually consists of a base software price, a monthly cost per user and an ERP implementation cost. This does not include any add-ons and customizations that an end-user may ask along the way. 

➣ Custom ERP Software

An average custom ERP cost is built differently and usually includes a base software price plus the implementation cost. There are no monthly or annual subscription or per-user fees. No add-ons or customizations are included in the custom ERP price.

Let’s look at a very basic example of how a custom ERP system is built.

A company is looking to develop an ERP system that will support their financial, inventory and manufacturing processes. Upon long discussions with the vendor, the client was presented with approximate timelines and an X cost to develop and implement the system. It took the development team 4 months to build and implement the new system. 

At some point of time, the owner of the company realized that they needed a quotation system to be able to provide their client with an opportunity to create quotes online, save and modify them. After reaching out to their software vendor, they were given a Y price to develop and implement an additional module to their existing ERP system. The entire ERP implementation took approximately 4-6 months and the total cost of creating a system from scratch and adding a new module was XY.

It is important to understand that unlike with a ready-made system, businesses don’t have to pay monthly for using their new software, nor do they have to pay for adding additional members. Plus, because it is a fully customized unit, they can add multiple modules as they go, which is a huge advantage to businesses if they want to expand. 

1. Number of users:

The majority of ready-made solutions offer a subscription-based model. A subscription-based ERP software is when the number of users are taken into account. There is usually a base cost to implement the system plus additional fees charged per user per month. Adding new users will cost extra fees. According to a source, it costs somewhere between $1740 and $9330 per month to run the system.  

Custom ERP system cost primarily depends on the number of modules included in the ERP system. Important factor: unlike a ready-made system, there are no subscription fees, no per-user fees. You get software that anyone in the company can use and the only time you will have to pay additional costs is if you need to add more modules to the existing system. 

2. Deployment method:

The two common deployment methods are on-premise and cloud-based. In the past, on-premise ERP systems were considered as the most secure, but with the cloud technologies developed rapidly for the past decade, cloud-based ERP systems gained greater popularity. 

The main advantage of a cloud-based ERP system is that they allow users to access the system from anywhere in the world as long as there is Internet access. Its main drawback (although, some see it as an advantage) is there is a monthly, quarterly or annual fee for using the system. 

3. Perpetual License vs. Subscription vs. Customized Software:

The two common ways to pay for ERP are through buying a perpetual license or a subscription. Generally the upfront cost of a perpetual license is higher than monthly subscription, but the subscription cost adds up over time, so businesses end up paying the same amount over several years. 

Subscription is surely a more convenient option for businesses as they can pay in monthly installments avoiding a large upfront payment. However, it allows only a certain number of users to access the ERP and usually adding a new member comes at an additional fee. 

With perpetual license, businesses are faced with a major upfront expense and updates that are rarely included in the price.

Of the three options, creating a custom ERP software from scratch is probably the most cost-effective solution. First of all, with a custom ERP you get software that is tailored to your business needs. Unlike with a ready-made unit, you will be fully utilizing the modules that come with your custom-built ERP system. Second of all, unlike a subscription-based software, custom ERP allows an unlimited number of users to utilize the software, so you save on every new member added to your team as your business grows. Third of all, you further customize the system as your business expands and add new modules as needed.

It is common for a custom ERP system to come at a higher initial cost than its counterparts. However, the return you will get is sure to outweigh the initial cost. 

It is important to keep in mind that almost every ERP software, regardless of the type, has the implementation cost. With a ready-made unit, it is usually a set price. With a customized system, the cost of ERP implementation depends on the number of modules to implement.

Of course, businesses consider many aspects before they make a final decision on the type of ERP system. Some find a subscription-based system just the right fit for their needs at the moment. Others look further ahead and think about scalability and flexibility of the ERP software, and thus, go for a fully customized solution.

4. Implementation:

It is important to keep in mind that implementing the software will take up the most time out of everything that goes into setting up a business with an ERP software. ERP implementation cost will probably take up the majority of the entire project budget as it is a lengthy and meticulous process, especially the ERP testing part, back and forth communication within the team and with the vendor etc. 

5. Top Modules

The cost of adding new modules to the existing ERP system varies for each provider. The general rule is it costs a fee to add a module to the system, regardless whether it’s a ready-made or a custom-built one. The question business owners need to ask themselves is whether their provider is capable of offering the necessary modules. There are situations where companies have to resort to another provider because their current one cannot accommodate their requirements for the new modules.

With a ready-made unit on subscription basis, not only business owners have to shell out additional money for the new functionalities but they also have to pay an increased subscription fee as well as any additional users that come along the way. 

Industry-specific ERP is a type of software that caters to a particular industry, e.g. manufacturing, distribution, food & beverage etc. In order to understand how the cost of ERP specific to the industry is built, it is important to first understand the difference between a custom generic vs. industry-specific ERP and a ready-made generic vs. industry-specific ERP system.  

Industry-specific ERP is a system that includes features that have been pre-selected based on the common requirements within the industry. So let’s say, an ERP software for the distribution industry would feature modules like inventory management, finance and probably some basic CRM modules. The content of a generic ERP system is dictated by the universal needs of any industry.

What’s common for generic and industry-specific ERP systems is that they both come with a set of modules that have been pre-selected, meaning they fall into the ready-made ERP software category, so the ERP pricing in this case is fixed but can change if new users and functionalities are added. 

Customization of generic or industry-specific ERP software is possible, but the extent of it depends on the capabilities of the vendor, and an applicable fee will be charged. 

Industry-specific ERP software can also be built from scratch. ERP price in such a scenario will be based on the number of features you want to add to it. One thing businesses have to look out for when choosing a provider for their custom industry-specific ERP system is whether the provider has experience in building software for their specific industry. A custom software development company that makes software for the healthcare industry may not be the best fit for someone looking for software for manufacturing.

While the cost of a subscription-based ready-made ERP system can vary with the time and circumstances, the custom ERP software cost is quite straightforward and commonly consists of a base software cost, implementation cost and any add-ons requested along the way. But are there any hidden costs? The answer is yes. Depending on the vendor, you may or may not be made aware of the training and ongoing support costs. Some vendors prefer not to disclose these aspects. Others include the training and a one year of support into their ERP implementation cost. 

The task of a business owner is to put those questions forward at the initial stages of the consultation. Regardless whether it’s an off-the-shelf system or a built from scratch custom ERP software, it is crucial to ask the vendor about the post software launch support and whether there will be training provided to the employees. 

While a ready-made unit may seem like an option to go for (for reasons such as costs), business owners often fail to analyze all of the features that come with the software and see how they align with the actual needs of their business. Many times, decision makers find themselves in a situation where only a few of the modules are actually utilized to their full potential. Moreover, as the time progresses, the company and its needs expand, business owners see the need of adding more features to the existing system and are faced with the problem of upgrading their software and paying additional fees for it. Another issue is when they have to look for a different provider to create those additional modules in case the software they already use cannot be customized (yes, that is a common scenario). 

So if you are facing a dilemma whether to go for a ready-made software or get a fully customized unit, consider how your business will evolve and whether the ready-made software can be customized to meet your ever-changing needs. 

ERP is a costly piece of software. In addition to the software itself and the cost of ERP implementation, there may be extra expenses incurred from the need for ongoing support and maintenance of the software and infrastructure. But if you look at the bigger picture, consider all the benefits your business will gain you’ll see that all the expenses are well worth it.

There are ways to keep ERP software cost low. However, they may come with implications. With a subscription-based software, you may try to limit the number of users and see how that works out for your business, but you will eventually discover that the efficiency of the processes in your business are lagging because not all the team members can access and utilize the system. 

With a custom-built ERP software, you may try to abandon some of the features or modules, but that again will result in lower efficiency that was originally aimed for. Eventually, you will find yourself in the situation where you have to add those previously abandoned functionalities in order to increase the efficiency of the business processes, which in turn will result in additional costs.

So, business owners shouldn’t be looking at how to reduce the initial cost of an ERP system, but rather at how to create a system that can fully accommodate all the needs and requirements of their business to boost its efficiency to the maximum and bring desired results.