A Beginner's Guide to Licensing and Funding an ERP Purchase

  A Beginners Guide to Licensing and Funding an ERP Purchase

An interesting situation occurs when a company realizes that they need to invest in a new ERP system to grow their business to the next level. A substantial investment is required in order to implement the new package, but the funds required for this purchase place a strain upon the very working capital needed to grow the business in other areas, such as hiring staff, marketing, etc… It’s a bit of circular logic, like trying to apply for your first job, and being told that you need to have work experience first.

For anyone currently considering a new software implementation -- for either an accounting system, or a full-fledged ERP package – here are a couple of tips for you to consider.

1)     Subscription Pricing

This is a relatively new licensing model, where users avoid the large upfront purchasing costs, and instead pay a monthly fee based on the number of concurrent users, or some other metric. This allows you to turn a large capital expense into a relatively modest operating expense, which can be predictably budgeted over a long period. I can already hear the inevitable objections: “Isn’t this some kind of a scheme, concocted by greedy software publishers, in order to extract perpetual fees from their clients?” Well, if you really think this is the case, then you can always purchase the software outright, but first do a considered analysis, which takes into consideration ALL the relevant factors.

In the scenario below, I have compared the sample costs of purchasing a 5 user ERP system outright (licensed column), versus the average subscription costs for the same period. Please note that many subscription packages also include access to telephone support for no extra fee, but this benefit isn’t quantified below, as the value is quite variable from publisher to publisher. As you can see, it takes roughly 5 years before the licensed version is a better value proposition, and that is excluding any interest and opportunity costs.

                                                        Licensed                               Subscription                 
Number of Concurrent users   5
 Upfront Cost per user  3495 N/A 
 Monthly Cost per user  N/A 120 
 Annual renewal cost  6291 N/A 
 Total Costs - 1 year  $20,621  $7,200
 Total Costs - 2 years  $23,766  $14,400
 Total Costs - 3 years  $26,912  $21,600
 Total Costs - 5 years  $33,203  $36,000

2)      Business Development Loans and Grants

If you want to raise funds for a new ERP system (both the software and related implementation costs) there are several options available to businesses in BC. Here is a collection of links to programs that may be of benefit to you:

If you want to learn more about solutions and services BAASS offers, contact us and we will have a specialist reach out to you directly.


Read about this ERP success story:

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