Demystifying ERP Pricing Options: License vs. Subscription
ERPs offer more flexibility than ever. The different deployment options mean that you can find the right software to fit your business’s unique needs and capabilities. The increase in flexibility, though, can also lead to overwhelm when deciding on each system. What deployment fits your business model and budget best?
ERP software is an investment of your time and money, so it is vital to understand your options and which one fits your business best. Software pricing structure falls into one of two categories: licensing or subscription. Getting to know each structure can help keep you from overspending and maximizing your return on investment (ROI).
We are going to dive into what each pricing model includes, factors to keep in mind, and questions to ask yourself when choosing the right one for your business.
Licensing vs. Subscription: What’s the Difference?
Perpetual licensing is the traditional option for most computer software for the past few decades. The subscription model, also known as Software-as-a-Service (SaaS), has become increasingly popular over the past few years. They are both different in how they charge for software:
Perpetual licensing charges companies a one-time fee and a small annual maintenance fee. It requires a larger payment up front, but then you own the license to access your ERP. The annual maintenance fee covers any updates or upgrades to the software.
Subscription, on the other hand, is a rental option. It allows you to use your ERP solution as long as you pay the subscription fee. Vendors typically charge an annual fee, which is often broken up into monthly payments. The subscription ERP model offers a lower cost upfront than licensing, but have a 3-10% yearly increase in fees on average.
Many companies fail to realize that SaaS is still software, and requires training, data conversion, and accommodation initially. Keep in mind that subscription still needs as much implementation scope and cost as licensing.
Why Choose the Licensing Model?
The subscription model does typically offer a lower initial rate, but licensing provides a better value and lower overall cost for most businesses.
To help offset rising costs in a subscription model, some companies choose multi-year leasing for a lower rate. However, this can be an expensive mistake if the company is unable to implement the software or finds it doesn’t meet their needs. If something goes wrong, they are still required to pay for the software. It also means that they are in store for a hike in prices once their lease is up, and it comes time to pay for another year. Many companies find that the software is too expensive after storing their data for years.
Contracts for a subscription can be difficult to understand and navigate. As the traditionally used method, licensing is usually straight-forward and follows standard contract law. However, companies may have trouble understanding vital issues such as data access, integration, system downtime limits, and additional fees with an increase in users and transactional volume. A SaaS agreement expert is critical for ensuring that you understand all of the charges and possible issues.
Licensing gives businesses better flexibility with their data. They can deploy their ERP on-premise or in a private or multi-tenant cloud while SaaS is delivered through a multi-tenant or public cloud environment. This can be especially critical for organizations with sensitive data that they don’t want to store in a public cloud environment.
Companies often grow and change their structure, priorities, and systems to meet their needs better. However, subscription-based ERPs are not always equipped to accommodate changes. It can be especially tricky to export your data to a new system if you need to do so because the vendor owns your data. Many companies find that it is too expensive to convert it all to a new system. They are forced to convert only the most essential data and continue to pay their subscription for access to less critical data.
However, companies that choose ERP licensing have no problem accessing and using their data as needed. Even if they find they cannot pay the yearly maintenance fee, they still own the ERP software and can use it. For new and growing businesses that aren’t sure about where best to store their data or are finding out the most effective method, the flexibility of licensing ensures that there is no headache or unexpected prices in the years to come.
Licensing is an easy and effective way to maintain control over your software and avoid unexpected price jumps. Businesses that choose the subscription model to save on upfront costs often find that it ends up costing them in the long run.
Questions to Ask When Deciding on Your ERP
Before investing years in a licensing or subscription-based model, some questions to consider include:
- Have you looked at a 10-year Total Cost of Ownership (TCO)? Many SaaS vendors draw in businesses with an initial discount. However, if you get 50% off for three years, for example, what happens when you hit year four? Look at costs over ten years to get a sense of which model makes financial sense.
- Do you understand the difference between a software partner and a software vendor? A vendor supplies the ERP, teaches you how to use it, and moves on to the next customer. A partner, though, becomes an extension of your business. Their expertise allows them to see and develop opportunities on your behalf, allowing you to grow a stronger and more effective company.
- Will you have access to your data? Some vendors purposefully make it difficult to remove your data. It ties businesses to them even when customers are no longer happy with the software. Better access to your data puts you in control of your software and organization.
- Is the software scalable? Growing companies may be shocked to find their prices skyrocket as they require more users. Licensing, though, allows you to use your ERP as much as you need because you own it.
- How do integrations work? Accessing data is often more difficult with subscriptions, so integrations may not always work or be challenging to implement.
- What if our transaction volume doubles, 5x, 10x, or 100x? Licensing gives your business the freedom to grow seamlessly. However, many SaaS models charge significantly more as the needs of organizations increase.
About Third Wave Business Systems
Third Wave Business Systems is an SAP Gold Partner, the world leader in ERP software. Our professionals can help implement ERP solutions for your on-premise and cloud deployment with in-depth industry expertise. Our experts can help you choose the best ERP solution based on your business’ unique needs and goals.
To learn more about ERP pricing options, schedule a customized demo with one of our experts today.