5 ERP Pricing Definitions You Need to Understand
The utilization of acronyms and purpose-derived financial jargon goes with the territory when it comes to technology. However, these characteristics particularly apply to the modern ERP lexicon since today’s resources platforms tend to be transitory in nature. This sensitivity is primarily driven by ERP’s movement away from legacy or wholly premise-owned systems, and toward SaaS and/or cloud variants where the purchase of a platform is not so much guided by ‘ownership’, as it is being ‘rented.’ As a discipline, ERP systems are constantly moving along the scale of past, present and future, leading to the creation of three central, yet sometimes confusing lexicons when one is attempting to understand ERP pricing.
1. EULA (end user license agreement)
In today’s lexicon, EULA typically applies to an overarching software systems agreement, more usually applied to an ‘owned’ software purchase; although given the hybridizing nature of current ERP platforms, the acronym should be understood as much more than that.
The essential legal definition of the word EULA is; “A legal contract between a seller and an end-user of a software application.” However, this definition is simplistic to a fault since, today, everything related to the ‘how, where, who, what, and how much’ between an ERP vendor and their customer is typically embedded somewhere within the “business understanding” fine print.
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As a relevant and subordinate component of a EULA, ERP pricing usually operates on the basis of one of two term types that guide the formal business relationship between customer and vendor:
1a. Term license - In the first instance, a customer executes a limited agreement, usually managed on the basis of a specific time period. Consequently, this arrangement is referred to as a ‘Term License’; meaning the formal business understanding only exists within a series of milestones established by a particular schedule of payments. These usually extend to anything from one to three years. At that point the agreement must be renewed for a similar term or operational ownership of the license becomes null and void.
ERP systems are constantly moving along the scale of past, present and future, leading to the creation of three central, yet sometimes confusing lexicons
1b. Perpetual license – In the second instance, referred to as a ‘Perpetual License’, an agreed upon business relationship extends from its initial purchase payment, supported by regularly recurrent ‘maintenance’ fees extending forward into the future. As long as the system’s periodic fee requirements are completed the license maintains its legal viability, without the need of a regulated renewal process.
This ERP pricing model is mostly applied in the case of SaaS or ‘cloud-based’ ERP systems. Rather than involving the customer and vendor in a detailed license agreement, ERP vendors allow user access to hosted systems derived by regular monthly subscription payments. The advantage here is primarily speed of deployment and operational implementation.
3. Managed service provider (MSP)
This purchase model offers the advantages of SaaS integrated with all of the necessary low, mid, and high-level utility network elements that create a stable cloud-based ERP environment. Typically, MSPs, sometimes referred to as ‘applications managed’ licensing, utilizes the same recurrent vendor-to-customer model as the subscription model, wherein technical services are paid on the basis of a regular monthly or quarterly payment schedule.
While these 5 ERP pricing definitions create a general sweet spot to help define differences between on-premise, SaaS and Hybrid ERP systems purchases, today’s ERP purchase is fraught with levels upon levels of complexity. Consequently each enterprise requires subjective thinking and a “look before you leap” mentality when it comes to the final ERP purchase decision.
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