Costs to Consider During ERP Vendor Negotiations
Total cost of ownership = hardware costs + software costs + licensing fees + enterprise fees + maintenance fees, right?
Wrong! The cost of an ERP system is more than you might think. Fortunately, avoiding unexpected costs is easier than you might think. By effectively negotiating with your ERP vendor, you can ensure that they account for all necessary costs.
Before You Negotiate
How can you determine what costs are necessary for your organization?
Conduct a technical fit assessment by evaluating your current IT inventory and IT strategy. Maybe your organization needs to rework its IT strategy, develop a digital transformation strategy, or augment its IT staff. Without question, your organization needs to conduct ERP training – another essential to include in your total cost of ownership. And don’t forget recurrent training every 24 months for new employees and employees who need a refresh. While you’re at it, you should go ahead and plan for all of the other important aspects of organizational change management.
How can you determine what software functionality you need?
Document your organization’s processes in terms of specific business and technical requirements. Then, provide these requirements to ERP vendors so they can include relevant functionality in their software demonstrations. Communication is key if you want to avoid paying for functionality that you don’t need. On the other hand, you don’t want to forgo functionality that you might need in the future, such as mobile capabilities.
How can you determine your opportunity cost?
Develop a business case to determine the opportunity cost that you avoid by implementing new ERP software. Focus on the business benefits your organization expects to realize from the software – including labor and non-labor benefits – and quantify them from a financial perspective.
Saving Money Through Vendor Negotiation
The above steps can save your organization thousands of dollars in software costs. However, many organizations do not have the resources or expertise to conduct these assessments so they engage a third-party. Organizations often find that an experienced negotiator can save them more money than they expected.