Licensing fees make up a large portion of hidden costs in Enterprise Resource Planning (ERP) solutions because their pricing structure can be difficult to understand and navigate.
Choosing an ERP solution is one of the biggest decisions a business can make, so it is important to have a full understanding of the pricing structure of ERPs.
Modern ERP solutions are typically designed with a modular architecture, which allows customers to buy portions of the software rather than its entirety. With this approach, ERPs can be configured to meet each business’ specific needs. While this modularity provides more flexibility, it also makes it difficult for businesses to pin down the true licensing costs.
Each module or bundle of modules often has its own licensing fee, but these prices are rarely advertised with clarity. Instead, many vendors will advertise the prices for their smallest modules as if they are the full base program, making it seem as though the required functions are cheaper than they are.
Unfortunately, the lack of transparency in pricing for add-on modules can lead to confusion and uncertainty. When ERP vendors refrain from providing comprehensive pricing details, businesses must to go through lengthy negotiation processes to obtain an accurate quote for their solution.
These cheap prices are enticing since the entry-level costs appear reasonable. However, customers quickly realize that the small modules do not cover their operational requirements, which can force them to buy additional, expensive modules. Worse yet, some customers only learn this information after signing a multi-year contract.
Challenges of Ambiguous Licensing Fees
When the pricing is ambiguous or misleading, businesses may struggle to fit it within their budget. Unexpected licensing fees can disrupt financial planning and force businesses to spend more than they anticipated.
Businesses can have a hard time comparing their options when pricing details are hard to find. Being able to accurately compare systems is vital for good business decisions, so the lack of pricing transparency can seriously disrupt the decision-making process.
As businesses grow, their requirements will evolve, and they will need to add new modules or expand existing ones. Many businesses do not know what modules they will need in the future, which makes the long-term cost difficult to understand.
Solutions for Decision-Makers
To overcome the challenges of ambiguous and misleading licensing fees, businesses should take a proactive approach.
Before looking into a specific ERP, decision-makers should take the time to delve into their own company to conduct a comprehensive assessment of their organization’s needs and processes. In doing this, they can identify what types of modules and functionalities would be most helpful for them in the present. They should also take the time to talk through where they see the business growing and decide which functionalities would be helpful to them in the future.
Next, they should consult with other businesses that have already implemented ERP systems. Ask them what functionalities they needed and what it cost them. This is especially helpful if their business is in the same industry.
Finally, they should be sure to request detailed pricing from the ERP vendors they talk to and negotiate strategically with whichever one they decide to implement. By knowing their needs beforehand, it can be easier to understand the complicated pricing structures.
Avoid Excess Licensing Fees
Not all ERP solutions use a modular pricing structure. Xledger, a leading cloud-based ERP solution, keeps its pricing transparent and simple so there are no unpleasant surprises.
Find out more about Xledger’s functionalities and pricing by booking a one-on-one demo.