Looking at ERP? Think TCO!


danielle's picture

Total Cost of Ownership (TCO) is a significant factor in choosing an Enterprise Resource Planning solution.  But it's another one of those TLA's (Three Letter Acronyms) that not everyone seems to completely understand.

So what do I mean by TCO? It's the sum of all the costs associated with implementing a major software application.  You should factor in not only the cost of the software (if you're purchasing a commercial license), but also any additional costs which may follow as a result of your decision (whether you know it or not).  Carefully reviewing the details of an ERP purchase may uncover  “hidden costs” in acquiring and operating software that might otherwise not be apparent.

Here are some things to consider...

As this is a long term commitment, consider where your business will be in the years to come. 

  • Will your software provider charge you additional fees for additional modules?  Don't just make a decision based upon the needs of your business today, try to look ahead to your business needs into the future.
  • Will your company need multi-facility, multi-warehouse or multi-currency capability?  How much more might this cost with other ERP software providers?
  • Will you need to purchase new servers, new desktops or laptops or will the ERP you're purchasing run on your existing hardware?  Maybe you'll run all Windows today but would like to have the option of switching to Mac, Linux or even a combination of all three operating systems in the future?.
  • With some ERP solutions you're required to run Microsoft Office for every desktop user – as well as some expensive, resource intensive mail servers and mail clients.  This would preclude the business using lower cost tools such as OpenOffice, Zimbra, and Thunderbird.
  • Is any other software required? Many "other" solutions require layers of additional software to run their application.  It's important to ask if you'll need an Application Server, Web Server, Terminal Services Software for remote connectivity – or any other software fees required to run their application, you may be surprised!  Does the "starter license" for the Oracle or Microsoft SQL database suddenly triple in price when you add an incremental user?  A common, yet often overlooked additional cost is for a report writer - usually not included in your software license fees.  Who gets to use it? Everyone or just a few people within your organization?  Every client, every version of xTuple ERP includes a free and open source report writer, OpenRPT.

Finally, consider the cost of the software itself.  Sometimes hidden in the cost of software license are important details such as Named versus Concurrent user license fees (see Yes, we publish our pricing!).  License fees for the xTuple commercial versions are based on concurrent users meaning that you're only paying for the number of users logged into the system at any given time, so 10 user licenses allows any 10 people access to the system at any time regardless of who they are.  Often however, license fees are calculated as named users so that you're purchasing licenses based upon a number of people and access is granted by name only. So 10 named licenses allows only those 10 people access the application, if someone else within your organization requires access, you're required to purchase an additional license. 

And because xTuple ERP is open source, it's actually easier and less expensive to implement.  You can leverage your existing hardware and software investments, you don't need a dedicated database administrator (DBA) to babysit the application, and we take a simple approach to things like remote access.  In addition, our application is community-driven, meaning we develop what our community of users wants and needs – so it has to be easy to install and easy to use.  We have trained and authorized partners in locations around the world available to visit with you to assist with your research, implementation and on-going support.

Any one of the hidden costs mentioned above can add up to tens of thousands of dollars in un-budgeted expenses.  Knowing the costs and making decisions based upon a thorough understanding of what's included (and what's not included) in your ERP purchase can save your company time, money, and aggravation over the lifetime of the software.  If you have questions about ERP, TCO, or any other TLA, please feel free to email us, or give us a call at +1-757-461-3022.  We're happy to help answer any questions you may have.