Understanding ERP Licenses
Whether it’s an on-premises system or Software as a Service (SaaS) every ERP system comes with a license.
Understanding that license and its implications is an important part of managing an ERP system effectively.
There’s a good deal to understand because ERP licenses come in a variety of flavors. When considering implementing an ERP system it’s import to understand the terms of the license.
Per installation, per seat or per user.
One of the first things you need to know is how you’re being charged. Typically an ERP license cost will be based on the number of users. That is either the total number of users or the number of users on the system at one time.
Since all the ERP users in the company seldom need to get on the system at the same time, a per seat model usually results in a lower total cost. However not all vendors offer this model.
Another consideration is the degree of use. Some vendors offer a “license lite” for users who just need limited function, such as reading reports, at a lower cost. This can save you a lot of money since the majority of ERP users in a business only need limited access to the system.
Finally, some vendors offer a flat rate license per site with no consideration of how many users you have. This has the advantage of giving you a fixed price rather than a floating one. Some other vendors offer licenses by bands – say 4 to 100 users at one price and 100 to 200 users at another, higher, price.
A variation on pricing is pricing per module. This is related to the flat rate scheme except instead of one price for the entire system each module is priced separately. This can be a money saver if you only need a few of the modules in your ERP system.
What you will actually under these schemes depends on how much the vendor charges as well as the licensing scheme. Often this is a matter that can be negotiated as part of figuring the price.
Ease of upgrades is another factor to consider. Many vendors allow you to buy a limited version of their product and then later upgrade to a more complete form. This saves you money if you can start small and later expand as your needs change.
The caveat here is how easy it is to expand the system. If it requires a complete new installation to upgrade, starting small probably isn’t worth it.
Then there is the matter of annual maintenance fees. These are typically separate from the license although they are usually negotiated at the same time. Generally the maintenance fee will be based on a percentage of the annual license fee. It’s important to find out what the terms are and negotiate those as part of the cost package.
It’s also important to know what is included in the maintenance fee. It should include basic maintenance and will usually include basic upgrades and patches. However every vendor has their own definition of “basic” and what they include in the maintenance package. Anything beyond that has to be paid for extra.
Generally speaking, the license and maintenance fees for an on-premises ERP system will be more complex than the license for a SaaS cloud-based system. This doesn’t necessarily mean it will be cheaper, although it often is. But the SaaS license is usually easier to understand.
It’s important to realize that setting license and maintenance fees is a negotiating game. There are very few hard and fast prices when purchasing an ERP system. More commonly almost everything is in play and you routinely trade off one area for another. How well you can negotiate will play a big role in what the final cost will be.