9 Key Questions to Ask About Your ERP Software License

by

Marketing Manager, CAL Business Solutions

Choosing the right accounting software can be tough. With so many options and so much technical jargon, finding the package that meets your needs is quite a challenge. But once you have found the software that has the right functionality for your business, you need to make sure you understand the costs. There are ways to save money or to waste money; there are upfront costs to consider and hidden costs to avoid.

But you can be an informed buyer. It is important to understand that the total cost of an on-premise accounting software project will include three components: software licenses, implementation services, and hardware. In this article we will focus on software licenses. Here are nine questions that every accounting software buyer should ask before signing on the dotted line.

1. Is the system priced per user or per module?
Software that is sold under a user based pricing model will require you to pay one license fee per user. This includes access to all the modules of the system which you can turn on or offer to each user based on security. On the other hand, software that is sold as a module based pricing model will require you to buy the specific modules that you need (such as general ledger) on an a la carte basis.

If you only need a limited amount of functionally now and in the future, buying a module based system will usually save you money. However, module based pricing will limit the scalability of your ERP system. For many companies, user-based pricing is often a better value and a better investment – you get more for your money and room to grow.

2. Can you buy full user and light user licenses?
Once you’ve decided on the pricing module, you’ll need to decide how to define user. Let’s say you have 20 people in your company. Five of those people work in the finance department and need full time access to your ERP system. The rest of the company just needs to view data and run reports. If the software you choose gives you an option to purchase full user licenses and light user licenses, this can be a substantial cost savings for those additional 15 users.

3. Is the system priced by concurrent users or named users?
Following the scenario above, if you have 20 people in your company that need some type of access to the software, do they each need their own license? If you buy a system based on concurrent users, you can set everyone up in the system. However, you only need to buy licenses for the maximum number of people who will access the system at the same time. Often this is less than the total number of users and will save you money. If you pay by named user, however, you’ll have to buy a license for each user.

4. How easy is it to upgrade your ERP system?
If you have the option to buy the basic edition and easily migrate to the advanced version later, then it makes sense to buy only the functionality you need right away. This way your system list cost will be lower. You will also pay a lower annual maintenance fee until the time comes to add features to your system.

5. What are the required annual maintenance fees?
Just about every software vendor will require you to pay an annual fee based on a percentage of the software list price. You need to ask how these fees are calculated and how long you will be required to pay them. Negotiating your maintenance contract can be tricky business and is too complicated to go into depth here. Instead, we’ll refer you to this post on maintenance contracts.

6. What is included in the annual maintenance fees?
Equally as important is what is included in the maintenance fees. The main value of a maintenance plan is the ability to get new versions of the software as it is released. But there are also be other benefits such as included support calls and free online training which you can factor into your budget as savings. For example, if you have someone in your company who can research fixes on a customer portal or knowledge base, you can save money on simple support requests. Customers who are active on a maintenance plan are also often eligible for promotions, investment credits and other perks.

7. What are the rules for lapsed maintenance fees?
After a major update is released and installed you may feel tempted to let your maintenance plan lapse until the next release. However, you should consider the repercussions this could have later. Will you still be eligible for promotions? Will you still be able to receive technical support? Will you receive needed patches and updates (such as payroll and tax updates)? Maintenance plans are like insurance, we all wish we didn’t have to pay for it, but when we need it we’re glad we have it.

8. Is there a strong ISV/Add-On community?
Many products, especially from the large established software vendors, are supported by a network of independent software vendors that offer add on features to the core system. Often these add on products can help save you money by eliminating the need for costly customization. Or you may be able to purchase the Basic edition of the software and supplement any missing functionality with lower priced add-on modules.

9. Is there a strong user community?
Again, this is a point in favor of buying from an established vendor with a large install base. When users get together, either at events or in online communities, they bring together a wealth of information. A strong user community offers an opportunity to share ideas and learn best practices. Additionally, you can get free support advice, training tips, and more.

If you know the answers to these questions then you are an informed ERP/accounting software buyer. You can more easily compare quotes between vendors and feel confident that you understand what you will get for your money.

What’s your experience with software licenses? Please feel free to leave a comment below.

 

Thumbnail image created by juhansonin.

 
  • http://www.solutionexplorers.com Keith German

    Excellent content, and comprehensive. I would caution further on the following:

    1) if including “add-ons” in your purchase, be sure to understand who is responsible for supporting the product. Also, verify that the add-on vendor is “licensed” with the main product vendor so that when new versions are released the add-on vendor has time to confirm compatibility with the changes.

    2) Maintenance – many buyers don’t realize that some software companies allow for reduced pricing is multi-year contracts are purchased in advance. If, as a buyer, you can swing this in the budget than you may save some $ here.

    3) Support – if buying through an authorized VAR (value added reseller) then check to see if they too offer support services. This may cost extra, so consider this in your budget, but if they are local and responsive then you may want to go this route since they setup your database and know you personally.

    4) Concurrent login – lots of questions needed here. I know some products that count each login per module against the user license count; even if it’s the same user!

    Great post!

  • http://www.boyerassoc.com Jack Boyer

    This content is well thought through. As a vendor of a number of the top accounting and ERP products, I would add that Software as a Service requires a different computation when evaluating one of those solutions. Products such as Acumatica, Intacct or SAP’s Business by Design are all ERP products that can be licensed as a service.

    These products cost less initially but then more over time if run with the SaaS model. Acumatica allows for both on-premise and SaaS.

    To accurately compare Saas-only products to on-premise products however you need to evaluate the additional savings from having little down time with an upgrade as well as not having to do any work for an upgrade. You also do not have to upgrade your hardware, operating systems, or database versions. Your IT staffing needs to support these products should be less as well.

    For our Microsoft solutions, you also do not have everything included with the concurrent user pricing model. Modules such as payroll and Integration tools are extra. The pricing is fairly straight forward however and closest to the concurrent user model for a lighter “Business Essentials” suite and a more comprehensive “Advanced Management” suite.

    Both Intacct and NetSuite charge more for a user as well as for more functionality. SAP is the only vendor I’ve seen whose licensing is as simple as “x per user”-regardless of the functionality you need. 10 users are a minimum number of named users with this product.

    Jack Boyer
    http://jackboyer.blogspot.com/

  • http://www.aberlawfirm.com Jeremy Aber

    Great post.

    I think that is a great short checklist before looking to make any type of software purchase, as every customer needs to clearly understand what you are paying, and what will be the costs along the way. Print this and keep it handy for your next purchase.

  • Chris Yap

    Good points to note.  If there is another point to add, it will be about data migration – how easy is it to migrate transaction history and how far back can we go.

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