In your search for a new ERP solution, you will inevitably have to decide how you want to pay for it. Fortunately, the options are flexible, giving you the chance to figure out what works best for your business and budget.
One important clarification first: some users equate hosting an ERP system in the cloud with subscription pricing. However, the two concepts don't necessarily go together unless a vendor is forcing one model on you. You can have your ERP in the cloud with either subscription or traditional pricing. You can also have your ERP on-premise or in a private cloud with either model.
Subscription Pricing Model
The attraction is clear: lower up-front costs. If a smaller business wants to use ERP software but doesn't have as much capital as a larger company, subscription pricing can be a more flexible entry point. It also suits a business that isn't ready to commit to a long-term ERP solution.
Conversely, know that the total cost of a subscription will be greater over time — eventually you will pay more than a perpetual license would have cost. Also consider that with a subscription, you don't actually own the software. This means limited customization opportunities, potential price increases, and no control over upgrades. Once you stop paying, you must immediately cease using the software.
This can be an issue when migrating to a new system. Do you want continued access to your historical data? You'll either need to keep paying for the subscription or pay to have your data migrated. If your business has the resources, a perpetual license is worth considering.
Traditional Pricing Model
The traditional method is to buy a perpetual license — you pay for it once, even if the up-front cost is higher. Advantages include the ability to customize the software, freedom of use, and control over when you upgrade.
Without a maintenance agreement, however, you'll eventually need to purchase an entirely new ERP solution at upgrade time, which can be costly. That's why many companies opt to pay an annual maintenance fee, covered in the next section. If you trust your vendor and feel confident in your ERP selection, purchasing the license gives you complete control over how you use it.
Traditional Pricing with Maintenance
When a company purchases an ERP license, they can also agree to pay an annual maintenance fee covering the cost of new software versions as they are released.
Typically this fee is around 18% of the license cost. Over six years, that amounts to 108% on top of the original purchase price — but it's spaced out consistently over time, and you avoid the expense and disruption of implementing an entirely new ERP solution. From a planning standpoint, it's the most predictable option and places the responsibility of software upkeep on the vendor.
An added benefit is that your business builds a stronger long-term relationship with the vendor. They come to understand your unique business needs and can custom-fit the ERP solution accordingly.
Final Thoughts
Don't be sold on one pricing model, because your needs may change over time. In general, owning the license and controlling your software is advantageous — but that's not always the right fit for every business. The better you know your own situation, the easier this decision becomes.
At Carillon® ERP, we can work with you on any of the pricing models above, and we support public cloud, private cloud, and on-premise implementations. For more information, please contact us.