Beware of Add-On Charges When Selecting an ERP System
Cost is always an important factor when running your business, yet controlling it is not always the easiest thing to do. This is especially true when you decide to purchase something and find out that there are add-on charges that you had not initially accounted for.
Enterprise Resource Planning (ERP) systems are something no different from other things. In many cases there will be both upfront and recurring charges that increase your costs well beyond the standard usage charges quoted by the salesman. This article will describe some of those charges and we recommend that you investigate them thoroughly before finalizing your choice for a new ERP system.
Email and Telephone Support
ERP systems can be complicated and you will always have questions on various aspects of how the software operates. Almost all vendors will provide you with email and telephone support, but the costs for this could vary. Some vendors will include this in the basic charges for the software, while others may charge significantly for this. A common approach is a software support contract they may have different tiers depending upon the level service and the response time guarantee. Support that is available 24/7 will be more expensive than support that is only available 5 days/week during business hours. These charges can range to as high as 37.5% for the highest level of premium support. When negotiating your contract, it is very important to determine what level of support your company will require and ensure that the price for this is well understood.
Extra Cost Add-On Modules
To attract prospective customer attention some ERP vendors will quote a basic package with minimal functionality at a low price, but then offer the additional add-on modules that are often necessary at an extra cost. In these situations it is possible for the cost of the add-on modules to exceed the initial cost quoted for the basic package. When selecting your ERP system it is important for you to fully identify not only what additional modules that you will need initially, but also the additional modules you may need sometime in the future. Once you have done this you need to make sure that you receive a full pricing quotation from your vendor to make sure you are not surprised with these additional costs after you have made your selection.
Many ERP systems have the capability of providing an interface to another vendor’s software package to provide functionality not included in the basic ERP system. This capability can be quite useful, but you should watch out for additional integration charges when it comes to utilizing it. Although some of these charges may be reasonable for a new integration that the ERP vendor had not previously supported, if it’s not, some ERP vendors will include this at no extra cost. These charges can add up, soyou should review the costs closely before finalizing on your ERP system selection.
Implementation and Customization Fees
Once you have selected your ERP system, it is not unusual to require some help from the vendor in order to make it operational in your business. Not only will this require transferring data bases of Customers, SKUs, Vendors, etc. into the vendors system, but it will also involve employee training and other activities before you go live. Vendors will typically offer these services at an extra cost, but it could get quite expensive. Getting a quotation for this may be a little complicated because unlike some of the other costs mentioned above, determining the amount of effort for implementation support can be hard to estimate, and may vary considerably for different companies in various industries. See if the vendor can provide you a reference from a customer who is most similar to you and find out what their cost was for having the vendors help with their implementation. Also, watch out for vendors who will pass you off to a third party for additional help if the implementation gets too complicated. You will need to include the estimated costs from that third party in your selection analysis.
Associated with implementation costs are customization fees. All ERP systems are created with certain assumptions of the processes that companies use to run their business. However, your own business may not fully match the layout and structure that was programmed into the default ERP system. At this point, you can either decide to change your own processes to match the way the ERP system is set up or else you can ask the vendor to customize certain aspects of their software to match your structure so you don’t have to change. Many vendors will agree to provide customizations in their software to make it easier for you, but none will do it for free. During the negotiations, we recommend you do your best to understand what software customizations may be required and how much they will cost. In some cases, you may not fully realize what customizations may be needed until you are in the middle of your implementation so even if you don’t think you need any, it is wise to at least get a budgetary estimate of customizations from the vendor based upon the amount of work, or to ask them to provide examples of customization costs on other customer projects.
Miscellaneous Odds and Ends
One useful function is to provide a sandbox that a customer can use for training and practice of their employees. This would include access to the ERP system using a practice data base. Once employees become comfortable using this sandbox data base they could then start using the ERP system with the real data base and start processing real transactions for your business. Some ERP vendors will charge extra for providing this while other vendors will include it at no charge. This is another factor which can increase your costs and should be evaluated carefully.
Finally, vendors may think up various up charges to cost you extra and improve their profitability. Does the vendor charge you for extra storage costs to hold all your data? Or perhaps they charge extra to back-up your data on a regular basis in case of a system crash? Some cloud vendors may offer backup data centers that can host your ERP system if the primary data center goes out. But they might charge you extra to keep this available.
The bottom line, is that determining the total cost of a new ERP system takes a lot of thought and some research. If you hear a sales pitch that just quotes a basic cost on a per month/per user basis, take it as a starting point, and just one element for calculating your total costs. A vendor with a high basic cost that provide many services and functions at no extra charge, may very well turn out to be a better option than one who quotes a low basic cost and then adds on many additional charges that will cost a lot more money.
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