Guide to ERP Pricing Models

Can’t Choose a Pricing Model?

In your search for a new ERP solution, you will inevitably have to decide how you want to pay for it. Fortunately, the options for you are flexible. This gives you the chance to figure out what works best for your business and budget. This article lays down the basics of ERP pricing and the important points to consider before making any decisions.

Some users equate hosting your ERP system in the cloud with subscription pricing.  However, the two concepts really don’t have anything to do with each other unless a vendor is forcing you to use one pricing model or the other.  You can have your ERP in the cloud with either subscription pricing or traditional pricing.  You can also have your ERP system on-premise or in a Private Cloud with either pricing model.

Subscription Pricing Model

The attraction is clear: lower up-front costs. If smaller businesses want to use an ERP software but don’t have as much cash to spare or borrowing capability as a larger company might, subscription pricing can be a more flexible option. This also helps a business that isn’t sure they are ready to commit to a long-term ERP solution.

Conversely, if you decide on a subscription, know that the cost will be greater over time. Eventually, you will pay more than just buying the perpetual license. Also consider that using a subscription means you don’t actually own the software. This means a lack of customization opportunities, potential increase in prices, and no control over upgrades. Once you stop paying for the subscription price, you must immediately cease using the software.

This can be an issue if you move to a new ERP system.  Do you want continued access your historical data? You will have to keep paying for the subscription or pay the price of having your data moved. If your business has the resources, it is worthwhile to look at purchasing a perpetual license, as discussed below.

Traditional Pricing Model

The traditional method of purchasing software is to buy perpetual licenses. In this case, you only have to pay for it once, even if the up-front cost is higher. There are many advantages to this, including customization of the software, freedom of use, and getting to choose when you want to upgrade.

Depending on the size of the organization and its resources, these advantages might not mean as much. Without maintenance from the vendor, eventually you will have to buy a whole new ERP solution when it’s time to upgrade. This can be unnecessarily costly, which is why many companies opt to pay an annual maintenance fee to keep updated. There is more on this in the next section.

If you trust the vendor, feel confident in your ERP selection, then purchasing the license is the best way to give you complete control over how you use it.

Traditional Pricing with Maintenance

We mentioned maintenance fees above, so let’s continue talking about those. When a company purchases an ERP license, they can also agree to pay an annual maintenance fee. This covers the cost of new versions of the software as they are released.

Typically, the fee is around 18% of the cost of the license. So over 6 years, you will pay 108% on top of the original purchase. You pay a little extra, but it’s spaced out over time, a consistent amount, and you never go through the hassle of implementing an entire new ERP solution – saving your organization countless hours and money. Planning-wise, it is the most reliable and leaves the responsibility of software upkeep to the vendor.

Another benefit to this is your business has a stronger relationship with the vendor. They will better know your unique business needs and will be able to custom fit the ERP solution in the best possible way.

Final Thoughts

Don’t be sold on one pricing model when it comes to ERP, because you need different things at different times. In general, it is better to have ownership of the license and control over your software, but that isn’t always the case. The better you know your business, the easier it is to make this decision.

Here we gave you a brief overview, but if you have any other questions, feel free to contact our expert staff at Carillon® ERP.  At Carillon we can work with you on any of the above pricing models and we support public cloud, private cloud and on premise implementations.  We look forward to hearing from you!

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