When looking for an ERP system to handle the order processing and stock control for your merchant business, there are several factors that influence the cost.  Firstly, it is worth finding an ERP solution that is a great fit for your merchant business, as different software packages will suit different styles of operation.

WHAT TYPE OF ERP PACKAGE SUITS YOU?

FINANCIALS SOFTWARE

A simple financials package will have order processing and basic inventory control capabilities, but is unlikely to have all the functionality and scalability for your needs.  It will be inexpensive, typically less than £100 per month for a small business package from suppliers like Xero, QuickBooks and Sage, which you may already be spending to handle your financials.

AN INDUSTRY PACKAGE

An industry package will have the features you are likely to require, and generally will be supported by experts who have experience with your type of business.  The system will be able to be tailored to your specific business, but you won’t have the ultimate control over screen designs and functionality, though if the supplier is the developer, they may be able to develop features to fill any gaps.  

See the next section on more detail on the pricing for this type of package.

A CUSTOM APPLICATION

The ultimate in getting exactly what the business needs, no more, no less, can be an attractive proposition.  This will be a great fit for your business, but will be expensive and time consuming to create and deliver.  It is a good option if your business has a number of unique trading requirements, but remember the developer will also need to create all the standard stuff that you do the same as other businesses, as well as what is unique to you.  

There is no easy way to offer a guide to costing for a custom application, other than to say it will either be created on a Rapid Application Development (RAD) platform, that will make the build and delivery quicker and cheaper, but is likely to have higher ongoing running costs, or coded in a language that will take more human hours/days, but will be cheaper to run once delivered.  A good contract software developer typically costs £300 to £800 per day, depending on experience and location, and can be much higher.  

HOW MUCH DOES AN INDUSTRY PACKAGE ERP SYSTEM COST?

To understand the cost of an industry package ERP system, it is important to know the bundle of Hardware, Software and Services that go into the overall offering.

HARDWARE/INFRASTRUCTURE

A system needs something to run on. As ERP systems are multi-user, they are typically run from either on-site servers or an online hosted/cloud platform.

ONSITE SERVERS

On-site servers start from less than £1,000 and will scale according to the resources that are specified for it (processor, RAM, disk size, operating system, etc.).  Your application may require multiple servers for sharing the processing load, hosting and serving different elements of the application, and security and backup.  Any servers will need building, configuration, installation and setup.  Typically your IT provider will charge £500-£1,200 a day for these services.

CLOUD PLATFORM

A cloud platform is where the application is hosted in a commercial Data Centre.  This provides resilience, security and scalability that is expensive to replicate with on-site servers.  I have heard that it would cost over £300k to replicate the infrastructure of a data centre to service a handful of on-site application servers.  

Application providers have two models to deliver you a cloud ERP application: a single tenanted application - where your business runs its own version of the application on its own cloud container (like an online server), or multi-tenanted application - where the provider will have one container that has a single instance of application on it, shared amongst multiple businesses.  So you all log into the same system, but you only see your business’s data.  Multi-tenanted applications are much cheaper on the cloud costs, often included in the application subscription cost, but you have no control on when the system is updated, backed up, restored, etc.

The application provider will put together a bundle of cloud server resources which are built up to provide a platform for the application to run on.  A data centre setup for a single tenant ERP application, would typically be £140 to £900 a month, depending on the scale of your operations (based on £1m-£100m turnover range of merchant businesses).

APPLICATION LICENCES & SUBSCRIPTION

The main ERP application will have an application licence.  There are a number of pricing models for ERP systems, though most are costed on the basis of the number of users you have on your system.  This can either be named, or concurrent users, with concurrent typically being a bit more expensive as the licence is potentially ‘shared’ between the different people in the business.

There are also models based on a fixed cost per company, a share of revenue, number of transactions processed per month, but user number is the most common, so we will use that for this guide.

It used to be the case, that software was licenced with a single one-off initial cost to purchase the licence, with any additional services charged ad-hoc or monthly over time. With the rise of Software as a Service (SaaS), many systems have a monthly user subscription that includes the application licence along with a bundle of other services, such as cloud resources, helpdesk support, system updates, backups and the like.
The cost per user of an ERP system, will typically scale according to the range of features available to the user. The integration to other parts of the business and the additional infrastructure and services would be included in the price.  A simple feature set, like a driver delivery, or stocktaking user, might be £20 per user per month, where an advanced user with full trading capability and good support services, will be £100 to over £200 per user per month.  The on-going services such as telephone helpdesk support, updates and backups will usually be £10 to £50 per month of the licence costs provided above.

IMPLEMENTATION AND ADDITIONAL SERVICES

Introducing or moving an ERP system for a business is a significant process.  Unlike personal applications that you can try out and start using with little or no impact on your colleagues or other company systems, an ERP system requires good initial data to be setup; the system to be tailored to your operations; and a team of people given training and assistance to be confident, so you can all to start using the new system ‘live’ on the same day.  

For this process most industry specific ERP providers will offer a package of professional services to help get the business and the system ready for live trading.  This implementation project may be charged at a daily rate or fixed price.  As a rule of thumb, budget £1,200 per user for the implementation and training package, though this will be more expensive for small systems (less than 5 users) or those taking on an older legacy application.  It can be less expensive if you are prepared to do more ‘self-service’ on things like training and data import work.  

One consideration on the overall cost is what expenses are included or charged extra for any on-site work.

SO HOW MUCH IS AN ERP SYSTEM REALLY?

I hope you have found this article a useful and informative guide on the many variables and moving parts that go into providing the cost of an industry specific ERP system. 

Different suppliers will have different mixes of elements to their system, varying third party costs, fresh approaches to service provision, but I hope this paints a broad picture of the market for this type of software.

My parting advice would be to look for a system that has easy to understand pricing, and confirm exactly what is included and excluded in any pricing you are being offered for the software and the services that back it up.  

Finally, a great ERP system, backed up with knowledgeable professional services, will pay for itself many times over.  The wrong system may only cost you a few thousand a year, where the right system might cost several multiples of that.  However, the right one will grow your turnover, increase margins whilst reducing overheads and investment in stock, which can be worth hundreds of thousands year after year, and free up the most valuable asset you have - time.