Like you, we are troubled by the growing costs of scaling a business and the complexity of ensuring that your investments pay off.
Many of our clients struggle with the cost of technology and ERPs.
Here are some considerations to help you understand it. Hopefully, these factors can help you assess whether you are ready.
First – How can you save costs with this investment?
- Importance of ERP Selection & Implementation Partner: Your costs will change based on your software selection and partner experience. The significance of choosing the right ERP platform to achieve a substantial return on investment (ROI) can’t be understated. Most ERP implementations fail, often a combination of the client putting the resources and time into selecting a partner that fits your needs and culture.
- Benefits of Cloud ERP: Modern cloud ERP applications have cost savings, efficiency improvements, and enhanced security over traditional on-premises systems. Cloud ERP systems, like Acumatica, have a lower total cost of ownership.
- For small and midsized businesses, the five-year TCO of a modern cloud ERP application is estimated to be less than $260,000, which is almost half the cost of a traditional, perpetually licensed ERP system. Cloud ERP software subscriptions include maintenance and support.
- With cloud ERP, there is no need for costly infrastructure investments such as servers, backups, security, and database administration. This reduces the initial setup costs and ongoing expenses associated with maintaining on-premises hardware. Cloud ERP systems offer scalability and flexibility, allowing businesses to quickly adjust their usage based on their needs. This means companies can avoid over-investing in infrastructure and only pay for what they use.
- Efficiency: Cloud ERP systems can lead to significant efficiency gains by providing cross-departmental visibility and enabling better decision-making. This translates to cost savings as employees spend less time searching for data and more time on productive tasks.
- Specific Savings: One of the significant savings comes from labour. By automating various tasks such as accounting, order processing, and inventory management, businesses can reduce the time and effort required from employees. This increases productivity and allows employees to focus on more strategic activities.
- Cloud ERP systems eliminate the need for multiple standalone software applications. By consolidating various functions into a single platform, businesses can reduce software licensing costs and avoid the expenses of maintaining and integrating various systems.
- Traditional ERP systems often require separate licenses for each user, which can be costly. Cloud ERP systems typically offer more flexible licensing models, allowing businesses to pay only for their needed users. This can result in significant savings, especially for growing companies.
- Acumatica has no limits on users, meaning the whole organization can appropriately be engaged in one source of truth: no more side spreadsheets and emails managing the business. There are industry-specific benefits, too. For example, manufacturing companies can benefit from improved production planning and reduced downtime, while retail businesses can achieve better inventory management and enhanced customer service.
Overall, cloud ERP systems provide a cost-effective solution for businesses to streamline their operations and improve efficiency.
Next, what do you include in your measurement?
- Licensing Costs: This includes the cost of acquiring the ERP software licenses. Different vendors may have varying pricing models, so it’s essential to consider both initial and ongoing licensing fees. A robust implementation partner will be an advisor and help you understand discounts, renewals, price locks, levels, user fees versus transactions and your long-term forecast for expected investments through your technology roadmap. One of the reasons AmplifyTech became an Acumatica partner is the benefits of its licensing structure. Clients can get on an ERP much earlier, which helps them grow and get their ROI quickly.
- Implementation Costs: These are the costs associated with setting up the ERP system, including customization, data migration, and training. Implementation costs can vary widely depending on the system’s complexity and the business’s specific needs.
- Infrastructure Costs: These cover the hardware and network infrastructure expenses required to support the ERP system. Infrastructure costs may be lower for cloud-based ERP solutions than for on-premises systems.
- Internal Costs: These are the costs incurred by the business for internal resources, such as the time and effort employees spend on the ERP project. This can include project management, system administration, and other related activities. Having an important project as a side of the desk task to save short-term costs will cost you more in the long run. Our Recruiting team finds backfilling daily work and letting your core team be on the ERP a great way to expedite your ROI.
By carefully considering these cost components, businesses can understand the financial implications of implementing a new ERP system and make informed decisions to achieve a positive ROI.
Last, Calculate!
Calculating the return on investment (ROI) for an ERP system involves several steps to ensure a comprehensive understanding of the financial benefits and costs associated with the implementation.
Here are the key steps to calculate ROI:
- Identify Costs: Start by identifying all the costs associated with the ERP system.
- Set Goals and Benchmarks: Establish clear goals for what you want to achieve with the ERP system. Capture benchmarks before implementing the new system to have a baseline for comparison.
- Measure Benefits: Determine the financial benefits of the ERP system. These can include cost savings from reduced licensing fees, elimination of infrastructure costs, automated accounting tasks, and improved marketing and sales activities.
- Calculate Total Cost of Ownership (TCO): Sum up all the identified costs to get the total cost of ownership. This will give you a clear understanding of the ERP system’s financial implications.
- Evaluate Results: After implementing the ERP system, compare the achieved benefits against the set goals and benchmarks. This will help you determine the actual ROI.
- ROI Formula: Use the ROI formula to calculate the return on investment:
Net Benefits / Total Costs
Where Net Benefits = Total Benefits – Total Costs
By following these steps, you can effectively calculate the ROI for your ERP system and make informed decisions about its implementation.
Example: PostcardMania
PostcardMania, a company implementing Acumatica’s cloud ERP system, reported significant financial benefits. Here’s a breakdown of their ROI calculation:
- Initial Costs:
- Licensing Costs: $50,000
- Implementation Costs: $100,000
- Infrastructure Costs: $20,000
- Internal Costs: $30,000
- Total Initial Costs: $200,000
- Annual Benefits:
- Labor Savings: $150,000
- Software and Technology Savings: $50,000
- User License Savings: $30,000
- Total Annual Benefits: $230,000
- ROI Calculation:
- Net Benefits: Total Annual Benefits – Total Initial Costs
- Net Benefits: $230,000 – $200,000 = $30,000
- ROI: (Net Benefits / Total Initial Costs) * 100
- ROI: ($30,000 / $200,000) * 100 = 15%
In this example, PostcardMania achieved a 15% ROI in the first year after implementing the ERP system. This calculation demonstrates how the company realized significant financial benefits by investing in a modern cloud ERP solution.
Sources:
- Calculating ERP Software ROI
https://www.acumatica.com/media/2019/04/Acumatica_Project-Accounting_Data-Sheet_190401.pdf.
