How cost-effective is it to switch to a new ERP package? One of the factors you should consider is the Total Cost of Ownership (TCO). But how do you calculate it? Three key figures in a row.

Congratulations: you spent enough time comparing different ERP systems and finally made a choice. An important milestone!

After looking at all the obvious direct and indirect costs (and perhaps some hidden costs), you have now arrived at the TCO. With satisfactory TCO figures, you can get to the point and start the acquisition process. But: how do you calculate the total cost of ownership ship?

Acquisition cost.

The calculation of the acquisition cost is very straightforward: the total cost you incur when purchasing the ERP licenses and associated hardware.

Also included are costs for database and operating system licenses, investments in connectivity and security, software and system upgrade costs, and finally storage and backup costs.

Adjustment costs.

You will probably have to make some adjustments during the implementation of an ERP. These adjustments are almost always unavoidable and involve additional costs.

The cost of customizations can vary significantly depending on the level of customization planned. There are three types of customizations: process & functions, forms & reports, and integrations of external applications or services.

A clear view of these adjustments will save you time and money during implementation. Make sure you plan all the adjustments well in advance. Trying to do something ad hoc will not only jeopardize the entire implementation plan, but also cost you handsomely!

Operating costs 3.

There are also specific operational costs to compare.

The first cost is the annual maintenance fee. You have to pay a certain percentage or a fixed amount for maintenance. Paying this fee is to ensure that you get the latest patches of the software and ongoing support from your ERP partner. Maintenance fees can vary from vendor to vendor.

Another crucial operational cost depends on the type of implementation. If you are using a cloud implementation, you also have to calculate the monthly operating costs of your cloud service provider. Similarly, there are additional costs for maintaining the hardware infrastructure in case of an on-premises implementation.