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Five most common questions asked about cloud ERP – Part 2
In Part 1 of this two-part blog series, we explored the security of data on a cloud ERP system and also the length of implementation. Now we will discuss the various pricing models, cost and your exit strategy.
3. How does the pricing vary from on-premise?
The pricing models for SaaS and on-premise vary quite a bit.
Typically, with on-premise, you can expect to pay a one-off cost for the software and a one-off cost for the implementation. The ongoing and recurring costs tend to be centred around support which is often bundled into the pricing model for on-premise. The cost is considered a capital expenditure. The main benefit of paying for software in this way is that your costs are mostly absorbed at the start of the investment. The total cost of ownership decreases over time. The longer you run the software, the lower the cost of ownership. Fundamentally this does not mean better value for money.
For example, you may find yourself “version locked” into the software and upgrading usually requires costly reinvestment. It’s a bit like owning and running your own car. Once the car is paid for, the longer you run it for, the better the value extraction. However, after a certain period of time you need to start investing in the upkeep and the maintenance of the car. Eventually it won’t be running as you need and you’ll need to scrap your car and reinvest in a new model.
The SaaS model is different. It can be classed as an operational expense, since you pay (usually annually in advance) for access to the software you consume. You are effectively paying for the use of the software rather than the ownership of it - much like leasing a car. Unlike leasing a car, the upgrades are no additional cost. The price of each upgrade is rolled into the cost of the subscription so that means you are always working off the latest version of the software for no additional cost. Many vendors, such as SAP for Business ByDesign, also roll support into the cost of the ongoing annual license price. So, there are no hidden ongoing costs. You simply pay for what you use, as you use it...no upgrades, no old software, ongoing implementation.
4. How much will it cost?
Another “piece of string question” but equally as important. It is impossible to answer this question without having more information about your business (I’m happy to give you some ball park numbers if you want to speak to me about it). However, there are some ‘typical’ costs for ‘average businesses’. For example, you might expect around 50% of the cost to be the purchase of the actual software and the other 50% to be the cost of your users (roughly). You also might expect to pay circa £1k per user per annum for the full software suite and user license. So if you have 30 users the software might cost £30k p/a and if you have 60 users it might cost £60k p/a. To caveat this massively, this is a sweeping generalisation which assumes standard functionality and average user licenses.
You must remember to factor your implementation, customisation and integration into the costs. Although your implementation is a non-recurring fee, you should budget for 1-2x the cost of licenses for implementation. For example, if licenses cost £60k then implementation will be an additional £60-120k depending on complexity. This is a generic rule of thumb and you should never get a budget signed off without going through a thorough software discovery with your chosen vendor. Their role will be to identify the scope and complexity of your project and estimate the licenses required and days effort for implementation. It can vary widely project to project.
Click here to read: How Much Does SAP Business ByDesign Cost?
5. How do I exit?
It is always advisable to consider your exit strategy at the point of entry or before. Find out from your cloud software vendor how they specifically facilitate exit. A good vendor will have a swift answer to your questions surrounding retrieval of data and termination of contracts. It’s true that cloud exits are not as sexy as cloud deployments but it’s worthwhile putting a contingency plan in place, early into your tenure, as a failsafe. Reasons for exit are often unpredictable and can include things like changes to service, soured relationship, increased costs and poor SLAs.
Your exit strategy should contain the following:
- Consider how you will retrieve your data
- Consider the time scales for exiting contract and any notice period you may be eligible to provide
- Plan for running your business with a legacy software, spreadsheets or a new vendor and have the alternative in mind in advance
- Budget for additional costs to see you through your transition
Clearly, I am not advocating you enter the agreement half-heartedly, but it pays to line your ducks up for all eventualities.
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