June 8, 2018
Enterprises deal with complicated business processes every day. ERP software helps to optimize them and save time. Off-the-shelf solutions do not always fit everyone because of the lack of flexibility, customization options, high ERP implementation cost, maintenance, and licenses. Thus, enterprises often go for something proprietary and start the custom development. We have already touched on whether custom ERP development is worth the time and money investments and discussed the process of building an ERP from scratch. So, in this article, we will turn our attention to the question of how much does an ERP system cost.
List of The Contents
ERP software helps enterprises to automate business processes, be more efficient, improve productivity and collaboration. It leads to being more competitive on the market. That’s why enterprises, medium-sized businesses, and even startups need the ERP software that enhances their core business processes. They can build it or buy an off-the-shelf solution.
To prove the businesses’ need for ERP software, we’ll refer to a specific example. Let’s consider a dairy processing company, for instance. Its primary goals are the production and distribution of dairy products. It is supplied by various farmers whose production differs in its price, quantity, and other characteristics. However, the quality of the company’s final product must always be the best. Regardless of how much raw materials the suppliers delivered and what their quality was, the resulting products (yogurt, cheese, etc.) should always have the same characteristics that customers expect. Besides, no matter if caterers were late with the shipment, you should deliver the final products to several stores on time. Also, you need to keep track of production because it varies during the year, with peaks at particular times. It requires better management of human resources. Imagine how complicated the processes of purchasing, delivery, distribution, and employee management are. Storing, processing, and analyzing all this data yourself unassisted by any software would be pretty challenging. That’s why implementing an ERP system would be very useful.
However, custom ERP software development cost may seem pretty high. Later in the article, we’ll tell you what are some unforeseen costs of ERP software made out-of-the-box and why custom development is more beneficial in the long run. So, when we have cleared the importance of such a system, let’s move to the central part and estimate the average cost of ERP software.
STAGES OF ERP SYSTEM DEVELOPMENT
Before we move on to the discussion of the ERP system price, let’s see how the development process is organized. Sometimes customers think that custom development is always tricky and complicated, but we want to show you that with a professional software development company, everything is transparent and comfortable for the customer. Custom development usually follows such stages:
- Discovery, design, and planning. At this stage, a provider needs to form the requirements for a future application. To help with it, a customer assigns a person who has a deep understanding of the company’s business processes and is well-informed about the work of the business units. A supplier, in turn, provides a business analyst that helps the client to focus on all the important aspects that should be considered in the process of discovery. Together with the client, the team defines the needs and goals of the software. A product owner or a project manager on a customer’s side provides a supplier with the up to date information about the company, so they can analyze what processes require improvement. On the basis of the gathered information, a business analyst along with the designers form the SRS (Software Requirements Specifications) document, which contains all core information about the product. It helps to make developers’ work on the following stages more efficient and structured. Also, when everyone has an idea about the project complexity, they can approximately define the ERP system cost. The last steps of discovery are the process division into sprints and milestones with the scope of work that should be delivered in that period of time, and the design of the appropriate architecture, including databases and integrations.
- Development. The previous stage has helped define the needs. During this phase, the team of IT architects starts the development itself. Before they start coding, the SDLC model is identified. Usually, Agile is the perfect candidate, because it provides both sides with maximum visibility and flexibility during the development process. Apart from coding, IT specialists also have to pay enough attention to the data migration: they convert the old data to the proper formats, so it can be transferred to the new system.
- Testing. Although this stage is quite short, it is a crucial part of the development process. It is essential to test the system before it goes live. QA engineers check the databases for accuracy and correctness, revise the documentation and make adjustments if needed. If the tests are conclusive, potential users start learning how to work with the system. ERP system cost includes training because it might be difficult to get a grasp quickly without professionals’ help. If you want to save resources, the provider’s team can train only a few users, and when they understand it, they will be able to assist and train the others.
- Deployment and ongoing support. Once the system is tested and the users are trained, it can be exploited in the production environment. Even after the launch, a provider is always in touch with the clients in case unexpected bugs appear or they’ll need some help. ERP maintenance costs usually account for about 15% percent of ERP development cost yearly.
When building such a complex system as enterprise resource planning, it is essential to address the development process with the Agile methodology. It makes sure that every developed feature meets the customer’s needs and reduces the risk of ending up with a product that is different from the initial requirements.
Agile implies the project division into the interactions in order to reduce the risks. All four stages of development described earlier are performed during each iteration. At the end of each of them, a client receives a demo version of an app and is free to make adjustments. This possibility makes the Agile methodology so flexible. With Agile, customers actively participate in the process, which gives them enough control over the product development. It leads to a higher level of satisfaction from teamwork.
Custom application development still seems a bit tangled?
Read the article to understand how the development process looks from the client’s perspective. What stages it follows, and what you, as a customer, should expect at the end of each of them.
Custom ERP development encompasses numerous versatile tasks. That’s why many specialists are involved in the process. The technical team includes such project participants:
- Project manager
- UI/UX designer
- Frontend developer
- Backend developer
- QA engineer
- ETL expert
- Database administrator
- System administrator
Custom ERP Development Timeline
The duration of the project is affected by numerous aspects. They include the size of the development team, the project’s urgency and complexity, expected ERP system cost, and other factors. The duration of custom ERP development may vary, but for a project of medium complexity, it usually goes as follows:
- Discovery – 4-6 weeks
- Identifying stakeholders
- Gathering requirements
- Analyzing business processes and ERP goals
- Designing wireframes and mockups
- Forming Software Requirements Specification document
- Planning the development (choosing an SDLC model, dividing the process into sprints or milestones)
- Development – 13-18 weeks
- Testing – 2 weeks
- Data migration and validation – 2 weeks
- Launch and users training – 3 weeks
What is the overall duration of the project?
It depends very much on different aspects related to your business, but if we’re speaking about a project of medium complexity, it usually takes about 8 months.
A team can regulate the project’s execution speed by performing some tasks simultaneously. For example, employees’ training can be performed along with the testing or data migration. However, most often, users are trained when the system is already tested – during the deployment stage.
Since we are going to provide you with the ERP software pricing guide, let’s see what the system consists of so you can better understand what forms the final price.
DESCRIPTION OF THE ERP MODULES
The system addresses different aspects of business and, therefore, includes several modules. Their number may vary depending on your business’ size and your requirements, but the most frequently used ERP modules are:
- Human Resource Management. It is an essential and one of the most common system modules. It deals with the management of employees, departments within an organization, time and resource planning. Each of these categories includes numerous functions. For example, tracking employees’ attendance, onboarding, efficiency, skills, reporting payroll, storing personal information, etc.
- Professional Service Automation. It can also be called a Project Management module. It allows planning projects and managing human and capital resources related to them. You can access the real-time project status and associated timesheets. It improves the overall performance due to all documents being kept in one place and absolute control.
- Inventory Management. This module helps track information about each item stored in a physical warehouse. Querying information here is a lot easier. Each item has its identification number, and its location in the warehouse is available and easily accessed all the time. The system allows tracking items from the moment they enter the warehouse until the moment they leave it.
- Reporting (General Ledger). This module integrates with all other system components. It draws the information from the other modules and forms reports based on it. As a result, you receive a clear overview of the necessary processes on a single dashboard. The up-to-date info allows you to track the company’s performance in real-time.
- CRM. It aims at building long-term relationships with the customers and increasing conversion rates. With the help of the CRM module, customers’ needs are studied in order to provide services or products that meet them and, thus, improve clients’ satisfaction. This module tightly integrates with the sales and marketing module. It stores the communication and sales history, including calls and emails. It allows building more targeted marketing and, therefore, the company’s sales improve significantly.
- Sales. This component’s main goal is increasing and automating sales. It is achieved by storing a considerable amount of data about the customers and goods. It helps to regulate procurement, shipments, ordering, processing, and sales. Also, the list of customers and their preferred orders is formed on the basis of the CRM module that gives access to the sales history and other related information. Modules with advanced functionality may also include customer segmentation.
- Finance and Accounting. This module manages all information related to finance. It is a crucial part of any ERP system because it provides relevant financial information at any moment. Accounts tracking is the main feature of this module. It includes management of payables, receivables, general ledger, assets, and their analysis and reporting.
- Production Management. This module helps to manage the production chain. It deals with the data related to orders, logistics, and warehousing. Its goal is to make the best of production management. The production module includes numerous features like raw materials management, inventory preparation, storage, distribution, delivery, etc.
ERP SOFTWARE PRICING GUIDE
You can see that almost 35% of businesses are shifting away from legacy applications in favor of software built with innovative technologies. That’s why companies mostly choose cloud ERP solutions instead of traditional on-premise ones. They are more lightweight and fast, provide more security and offer efficient collaboration tools. Among their other upsides, there are easy implementation and low user involvement in maintenance. Software vendors support the application round the clock, so you probably won’t ever face some bugs that will require days to fix, as it sometimes happens with on-premise solutions. The reason for it is that you are responsible for an on-premise ERP system, and if something goes wrong, you’ll have to fix it. In case you don’t have a specialist at hand, it’ll take some time and prevent the whole team from using it.
Want to know more about cloud development?
Why have web apps become so popular, what are their advantages and reasons to develop?
Web software’s most significant advantage is that cloud ERP cost won’t exceed the traditional ERP system price. Moreover, you may even save some ERP maintenance costs. In other aspects, the ERP cost estimation is almost similar for any kind of system. The only thing that affects the price is the business size. It is obvious that an ERP system cost for a small business will differ from an enterprise app. So, let’s find out the final price.
What Forms The ERP System Cost
Of course, numerous factors affect the final price. They include developers’ location, team size, an SDLC methodology, technologies used, collaboration model, but we’ll stop at the more general ones. Conventionally, we can distinguish five stages that software follows starting from the development. While estimating the ERP software, you should take the price of each of them into account:
- Discovery and UI/UX design
- The development of each module
- System interconnection
- Data migration and validation
- Test of the whole system
- Deployment and users training
Let’s get to the estimation of each of the previous aspects to conclusively answer how much does an ERP system cost.
Discovery and UI/UX Design
Before the provider’s team starts the development itself, they have to perform the requirement gathering and analysis. Specialists who are responsible for this are a business analyst and a UI/UX designer. A business analyst asks a customer the right questions to receive a full understanding of the business processes. On its basis, he makes conclusions about the stakeholders, target audience, areas of improvement, and later, forms the software requirement specification document. UI/UX designers create application mockups that show the app’s structure and functionality. Later, those mockups will be used to create the final visual design of the app. They also create supplementary files like charts and diagrams that allow a client to see all the information gathered by the BA represented visually. At this stage, the software architecture is designed and the development is planned, so it is a crucial part of the process. To perform all this work, specialists usually need from 4 to 7 weeks. Depending on the project difficulty, this stage costs from $10 000 to $15 000.
Estimation Of Each Module
All modules have approximately the same complexity. We’ll perform the estimation only of the HR module, but the cost of others will be almost the same, so we’ll be able to calculate the whole ERP system price.
Since we’re not considering very complex enterprise apps and talking about medium project complexity, let’s use the existing ERP system, Odoo. Using it as an example, we’ll look into the functionality of the human resources component.
First of all, it provides you with an extensive list of the employees. It contains names, phone numbers, emails, positions, etc. You can also use filters or group the workers by a specific criterion:
You can select someone from the list and get more information in the full profile:
The HR component has a recruitment submodule, which makes the hiring process much easier. All the CVs are kept at one place, and can be grouped by using tags:
Odoo also allows you to create dashboards with offers of employment. You can overview all posted job advertisements and see who applied for them. On the basis of gathered information, you can schedule interviews, and automatically generate questionnaires for candidates:
The HR module is useful not only for the managers but also for the employees. They can easily track their working time in the integrated timesheets, and view the formed reports based on performed work:
Managers, in turn, can view the information on all employees’ timesheets in one place. The HR module is integrated with the accounting component, which allows the system to form paycheck reports based on the hours worked. You can filter the information by projects, clients, employees, and other criteria:
Employees also can submit their expenses for reimbursement:
Managers, in turn, receive these requests and can approve or deny them. If the HR module is integrated with the accounting module, the balance updates at once. The system automatically forms weekly or monthly reports of the entire team’s expenses and allows seeing the whole picture:
There are many more features that the human resource component provides, but the described ones were the most essential and often used. So, now we have a clear understanding of how a medium complexity ERP module looks like. To develop a module like this, it can take IT specialists from 2 weeks to a month. Its cost will be around $30 000. Since all modules have approximately the same level of complexity, the ERP system cost would be about $150 000 for the development, if we’re speaking about a system with five modules.
Cost Of System Interconnection
Now that we have estimated the cost of the modules’ development, let’s calculate the price of system interconnection. API’s development is the next essential step as it ensures the interaction between the linked modules.
Building an API implies the research to understand the data structure and communication between the components. After this, designers create the mockups or a prototype and developers build the API itself. Creating documentation is the last step of the API’s development. Usually, this stage takes about 2 or 3 weeks.
To leverage the best value for money, we’ll engage 3 specialists working full-time. With the range of salaries from $30 to $50 per hour, we receive about $15 000 for the API development and testing.
Data Migration And Validation
Migrating data from the old system to the new one will require data extraction, converting to the new format, and upload into it. On average, this process requires a database administrator and one or two ETL experts working for 2 weeks. Considering average salaries, data migration and validation will cost about $8 000.
Test Cost Estimation
The quality assurance experts are usually involved in the process from start to finish. They work along with the developers and approve the product at the end of each sprint. After the development stage has finished, QA engineers work more thoroughly to test the final product. Usually, QA experts’ work charges about $15 000.
Deployment And Training
Training is performed simultaneously with the software deployment. It may take less or more time depending on the number of employees, and the complexity of the system, but on average, it takes from 2 to 4 weeks. The cost of this stage will constitute about $10 000.
Now, we can estimate the final price by summing up the costs of all stages. At this point, the current average cost of an ERP project is $210 000. We’ll mention again that it is the average cost of the ERP system, and it may vary depending on the number of factors. So, we’d say that a medium ERP system cost will be from $140 000 to $230 000.
The ERP system connects all business units within an organization and offers a logical and strategic approach both for decision making as well as for improving the production and customer relationships. Since all the information is centralized, anyone can have it in real-time, which leads to improved communication between the departments. Custom ERP development can help your business shift away from the legacy apps and reach maximum productivity and efficiency.
The process of estimating the ERP system price remains the same. The only thing that differs is the software’s complexity, which leads to an increased number of modules and developing advanced functionality. To perform an accurate ERP cost estimation, it’s better to reach out to specialists who can help you with it.
Want to improve your business with a custom ERP?
EXISTEK has extensive experience in business process automation and custom business intelligence software development. We can help you develop an ERP system that will make your everyday business operations better.