“What is this going to cost?” is one of the most common questions in business. It’s also a very fair question. If you’re buying a product or service, you need to know what it will cost. For some items, cost is everything. If you’re buying cleaning supplies, for example, the lower the price, the better. Other times, with products that can have an impact on your financial results, cost is simply one part of a value calculus known as Return on Investment, or ROI.
Briefly, ROI is based on the formula: ROI = R ÷ I. Thus, if you invest (I) $10 in ERP and realize savings (R) of $12, your ROI $12 ÷ $10, or 120%.
How much does ERP cost? That’s the “I” in ROI—the investment you’ll be making in the software. Acumatica Cloud ERP offers a useful guide to estimating your Total Cost of Ownership (TCO). This includes the software licensing fees and annual maintenance, or equivalent monthly service charges for a Software-as-a-Service (SaaS) product. Then, you have the costs of implementation, which usually combines external consultant costs with internal costs of changing systems.
There may be infrastructure costs, especially if you’re buying ERP to install on-premises. After the ERP software is up and running, you will probably also have ongoing costs for the personnel who maintain the solution. Even with SaaS, you will have help desk calls and so forth.
What’s ERP Worth?
ERP ROI tends to look different when you look at modern, cloud-based solutions. Part of the “R” in the equation comes from expected savings. You’ll avoid the costs of hardware, data center, software licenses and maintenance fees.
IT savings are great, but they’re really just one element in determining ROI for ERP. It’s worthwhile to dig a little deeper and try to understand how ERP will affect your revenue, operating cost and brand value. This is where you might see a much bigger “R” than you were expecting, leading to a higher ROI number. For example, if you can use ERP to replace an inefficient, manual-process intensive accounting package, you’ll see savings in financial operations. This might come from being able to re-assign people.
Alternatively, with ERP, you might be able to improve your rate of field service delivery. That will translate into higher field service revenue. That’s more “R” in your ROI. Implemented properly, a modern cloud ERP should be able to deliver cost savings and revenue improvements throughout the organization.
There are also subjective, but quantifiable benefits that come from a successful implementation. For instance, if your people have improved morale from getting to work with a more, integrated accurate system, this can cut down on employee churn. This, in turn, reduces recruiting and on-boarding costs. Happier workers are also usually good for customer retention. Better field service management should drive more enduring customer relationships. These are not intangible benefits. They can all be modeled, e.g. by comparing revenue growth year over year with fewer customer defections.
We have worked with many companies on the process of assessing potential ROI from an ERP solution. We can help you arrive at an accurate answer to the question “How much does ERP cost?” Even better, we can show you how much ERP will be worth. To learn about Acumatica cloud ERP, contact us for a free demo.