Is Cloud ERP Actually Cheaper than On-Premises ERP?
Cloud ERP is a top choice for small and mid-sized businesses thanks to its lower cost of ownership. Here are the factors that make it so affordable.
Enterprise resource planning (ERP) solutions have been around for many years, but during recent times, cloud ERP systems have managed to steal the spotlight within the ERP industry. Not long ago, ERP systems were mostly deployed on-premises; however, that is not the case anymore.
According to Gartner over 60% of large companies worldwide with ERP systems considering replacement are projected to migrate to cloud ERP deployments from traditional on-premises solutions. Worldwide end-user spending on public cloud services is forecast to grow 23.1% in 2021 to total $332.3 billion, up from $270 billion in 2020, according to another forecast from Gartner, Inc.
The appeal of the cloud and cloud ERP solutions can be explained in many ways, but cost is one of the primary motivators behind organizations move to the cloud from on-premises ERP. Cloud ERP costs make this environment affordable than on-premises ERP, thanks to a range of influential factors.
To learn which factors are involved in making the cloud ERP cheaper than on-premises, continue reading this post. But before going ahead, let’s discuss cloud ERP solutions in brief.
What is Cloud ERP?
Cloud ERP (Enterprise Resource Planning) is a robust business management software – typically a suite of applications – that runs on the vendor’s cloud computing platform instead of on-premises ERP that runs on in-house servers and networks. This solution is often offered on a SaaS (Software-as-a-Service) model where all management, maintenance, and security falls on the provider rather than the company. Cloud ERP solutions offer rapid updates and upgrades, lower upfront and operating costs, and improve usability, system availability, and disaster recovery. You can say that cloud ERP solutions support the same or better functionality as on-premises software without most of the downsides.
Factors That Influence Cloud ERP Costs
Various factors can impact the company’s net income when working out the total cost of ownership of a potential cloud ERP software. Below are some of the significant factors that are responsible for reducing cloud ERP costs:
Cloud-based ERP solutions can be purchased and operated without investing a large sum of money in the beginning. Typically, these systems are priced under a monthly or annual subscription-based licensing model, where the amount can be paid monthly or yearly based on the number of users required. Conversely, on-premises systems operate on a one-time perpetual licensing model, which means a company must pay a higher upfront cost to purchase the software. So, cloud solutions make cash flow management and planning much easier for small businesses looking for a lower initial acquisition price.
Hardware & Servers Costs
With cloud ERP, you don’t need to spend money to purchase servers to host your solution or have IT resources on hand to maintain the hardware and software. This keeps your operating (and electricity) costs lower. Whereas with on-premises solutions, you do need to purchase servers and hardware to run your software in-house. Not to mention, these are typically replaced or upgraded every five years or so, resulting in additional costs.
System Maintenance and Upgrades
Cloud ERP providers are responsible for routine maintenance of their solution to keep the overall system functional. This means your cost for maintenance is quite low, in comparison. Software updates are quick, painless, and automatic, requiring no extra work from your end. With cloud ERP, you can be sure that your solution is on the most up-to-date version. The cost for these updates is typically included in the subscription fee. This is not the case for on-premises ERP solutions, whose upgrades are a complicated and expensive process. Essentially you will need IT resources to implement a software version update as well as maintenance for the solution daily.
Customization is often needed for increased functionality to manage complex business processes seamlessly. On-premises ERP can be customized, but those modifications are linked to the existing software deployment and get wiped out when the system is upgraded. IT resources are required to re-implement all the necessary customizations again. In contrast, while cloud ERP solutions may not be as customizable, they are more flexible. You can keep your customizations intact as software upgrades occur, as changes are not made on the base code.
Cloud ERP can cater to a large number of users and are flexible, allowing you to scale your business up and down as required easily. This can reduce costs in the long run, as you only pay for the functionality and number of users you require at any given time. On-premises ERP solutions do not have this flexibility. Scaling a business with an on-premises solution usually requires additional investment in hardware and infrastructure.
Cloud ERP solutions often make it easier to integrate with third-party products than an on-premises solution, making it simpler to accept new applications as your business needs evolve. For example, a cloud ERP solution like Dynamics 365 Business Central not only seamlessly integrates with Microsoft Office 365 and other Microsoft applications such as the Power Platform, but you can also easily extend the functionality through apps found on the Microsoft Appsource. This is often cheaper than installing add-ons in an on-premises solution.
Is it Time to Move to the Cloud?
Cloud ERP solutions offer companies some powerful benefits such as agility, better security, lower costs, and flexibility. They remove the difficulty of maintaining and updating systems, enabling companies to make a move and invest their time, money, and resources into fulfilling their fundamental business strategies rather than focusing on the maintenance of IT infrastructure.
If you’d like to learn more about the benefits of cloud ERP, we’ve rounded up a list of articles and resources below you might find useful.
Is your business ready to switch from on-premises to the cloud? Get in touch with the Kwixand Solutions team for a free consultation to discover whether that is the right move for your organization.