Watch Out for These Hidden Software Costs Between Vendors

When evaluating ERP software, you want to make sure you have a good understanding of the cost differences between vendors. While price alone should never be the deciding factor when selecting a vendor – instead you should focus on finding the right functionality and business fit – it is an important consideration of the buying process. For the most part, when searching for ERP software, the costs will be comparable between competing systems within the same tier … which is why it doesn’t make sense to try to compare an introductory system like QuickBooks with a full ERP solution like Blue Link. However, even within the same category of software, there can still be subtle differences between the cost of different vendors and sometimes hidden costs that are not apparent upfront. 

Let’s take a look at some of the hidden software costs between vendors. 

License Fees

Cost Per User

Most software solutions base part of the cost on the number of users or software licenses. However, there may be different ways of accessing information in an ERP solution which means you will have different user requirements. For example, you may have sales reps in the field who need to interact with the software differently than someone in your accounting department. Some software vendors will have different pricing options (or tools) depending on the needs of the user. Alternatively, some software vendors will have the same pricing but with the ability to set different permissions and security settings for individual users or user groups. Some vendors may also have minimum user requirements or customers have to buy users in groups as opposed to individual licenses. 

Monthly Fees

Another difference between ERP vendors will be around how the company actually charges for user license fees. While many cloud-based software providers charge a monthly fee per user, some vendors require these monthly fees to be paid upfront, on an annual basis. This can require a large investment of cash upfront and negatively impact your cash flow. Instead, consider the option of vendors that charge monthly fees per month, which allows for a more predictable cash flow and decreases your overall initial investment. 

Discounted Pricing

Lastly, when it comes to license fees, be wary of software vendors who offer discount pricing for the first year or a set time. This is very common among large software vendors where competing sales reps have to meet specific quotas and will therefore provide a discount to try and sell more (especially towards the end of the year). What often happens is that these prices will then increase after the initial “discount” period, long after the sales rep has already moved on to closing their next account.  

Implementation Costs 

For the most part, there are two popular pricing models when it comes to software implementations – “guaranteed” and “time and materials” cost structures. Nowadays, most vendors charge based on time and materials as this method tends to be the best, however, you may still come across a vendor promising a “set” implementation fee. The issue with having a set cost for the implementation is that it doesn’t take into consideration many of the variables that are inevitable when doing a proper implementation. For example, let’s look at some of the components that make up a typical software implementation. 

  • Configuration and Integration: Configuration means setting up the software with your company’s existing information, users, and personal settings. Integration is then the process of enabling the software to communicate with existing and external systems (if required).
    • Sometimes you may be stuck waiting on support from an external system to finish the integration which can delay the process and add to costs if it requires additional set-up.
  • Data Migration: Data migration makes up a large part of the implementation process in terms of both time and cost and involves transferring data from your current systems or spreadsheets into the new one.
    • The requirements of this stage will depend on if the data is being moved from multiple systems and is in different formats.
    • You may also want to clean up data (such as bad data, old data, duplicate records, and data with formatting issues) which can require additional time.
  • Customization: This includes such tasks as changing the source code of the software to fit a specific need or business process as requested by your company.
    • A good software vendor will work with you to determine any custom requirements during the sales process which means this activity should not add any additional time or costs. However, new custom requirements may arise during the implementation process itself.
  • Reporting: Similar to customization, this component includes creating new reports and forms not included in the standard software package.
    • Once again, this should be a predictable cost based on how thorough the vendor is during the sales process but could change throughout the implementation process. 

Implementations also include activities such as the initial project definition of scope, installation, testing and documentation, but these are much easier to predict in terms of time and cost. While experienced software vendors will be able to better estimate the time and costs required as part of the implementation, as you can see from the list above, there are still many variables that can arise and change during the implementation itself. The idea of a guaranteed implementation cost can be very attractive to clients, but in reality, rarely will the final price be what was discussed during the creation of the initial proposal. The better and more popular way to quote implementations is based on “time and materials” which essentially works out to hourly pay. Even with this method, experienced vendors will be able to provide you with a pretty accurate cost range to help your company budget appropriately and set the right expectations. A good vendor will then rarely go outside of the estimated cost during the implementation process which means no surprises or disappointment for your team. And, any additional costs that arise during the implementation are communicated to you in advance for approval. 

Training Costs 

Training costs are typically included as part of implementation costs, but it’s important to break them out here to be able to understand some of the differences between software vendors. Training is the process of teaching all users how to use and navigate the new software system. While this may seem straightforward, you want to check WHO will be doing the training. Will it be the same team that is helping with the rest of the implementation? Does it get outsourced to a 3rd party company? If the training is being done by the same people helping with the rest of the implementation, this can be very beneficial. Not only does it simplify the overall implementation process, but it also makes it easier to get additional training down the road if needed. 

Maintenance Fees and Upgrades

Finally, maintenance fees and upgrades are other areas where there can be hidden cost differences between software vendors. With cloud-based solutions, maintenance fees are usually built into monthly fees and include upgrades to the software, IT maintenance (think bug fixes, security patches, etc.) and warranty. However, the maintenance fees charged by some vendors will cover software upgrades, but not the actual delivery of the upgrade. The upgrade will be available to your company, but the vendor will then charge additional fees for applying the upgrade to the system. In addition, you want to make sure that upgrades include any customization work. Once again, some vendors charge an extra fee for upgrading systems that have custom modifications. This means that even if maintenance costs cover upgrades and the delivery, you still have to pay a lump sum to have the custom reapplied. 

As you can see, there can be various hidden cost differences between software systems that are competing in the same space. Once you’ve learned more about the costs associated with ERP software, you then want to consider exactly what each vendor you’re evaluating is charging. Don’t make assumptions and always read the fine print on price estimates and proposals. And remember, if the pricing seems too good to be true (and significantly different from other vendors in the same category), it will be worth further investigation. 

READ MORE: ERP Pricing Guide