Custom ERP cost vs annual licenses: the real math

When a company compares a licensed ERP against a custom system, it almost always compares badly: it puts the first year's license fee next to the total cost of development, and the license looks cheaper. It is a comparison between a monthly payment and a house. To decide well, both have to be placed on the same horizon, which for operations software is three to five years at minimum.

This article does that math. Not with list prices, which change and depend on each case, but with the cost structure of each option, so you can fill it in with your own numbers.

What a licensed ERP costs, in full

The license is the visible part. These are all of them:

The subscription. Charged per user, per month or year. Ten users today, twenty when the company grows, and each one pays. It is forever: the day you stop paying, you stop having a system.

Implementation. Almost never done by the vendor; it is done by a consultant or certified "partner", and billed separately. On large products it often costs more than the first year's license, and on complex implementations, several times more.

Customizations. The product comes designed for an average company. Every custom report, every extra field, every workflow your company does differently is a new quote from the consultant.

Training. The system is large and generic. The team has to learn to operate it, and so does every new hire.

Upgrades that break customizations. When the vendor updates the product, the customizations you paid for can stop working. They get quoted again.

The cost of what it does not do. If the system does not cover some process, that process stays in spreadsheets, with everything that costs in double entry and errors.

With a license, the day you stop paying, you stop having a system. With a system of your own, the day you finish paying, it is yours.

What a custom system costs, in full

Design and development. Paid once, in stages, as each module is delivered and working. It is the big cost and the only one that resembles "buying".

Cloud infrastructure. Servers, database, backups. For a mid-size company these are small monthly amounts, unrelated to the number of users.

Maintenance. A living system needs attention: adjustments when a process changes, security updates, a new module when the company grows. It is contracted by the hour or as a monthly retainer, and used when needed.

And nothing else. No per-user fee. No consultant in the middle. No customizations, because the system is already customized: it was designed around your operation.

The math over three and five years

To make it comparable, let us put the two options side by side in structure, not figures:

The shape of the curve is what matters. The license is a line that rises over time and with headcount. The custom system is a step at the start and then a nearly flat line. Somewhere between the second and third year they cross, and from there the difference grows in favor of the custom system every month.

And that is without counting what never shows up on an invoice: the operation adapting to the system instead of the other way around, and the processes that stay in spreadsheets because the generic product does not cover them.

What moves the cost of a custom system

To fill the math with your numbers, this is what makes a custom system more or less expensive:

• How many processes it covers. Inventory and sales is one size; inventory, sales, purchasing, production, invoicing and collections is another. That is why it gets built in stages: each module is paid for when it is needed.
• How many different roles use it. A warehouse clerk, a salesperson and a manager see different things. Each role is design work.
• What it connects to. Accounting, bank, online store, carriers. Every external integration adds work.
• How much historical data needs migrating. Ten years of spreadsheets do not import themselves.
• Who builds it. A large agency charges for its overhead; a small senior team charges for the work. We explain it in why you no longer need a 15-person team to build software.

Why it is affordable today

Ten years ago this math came out in favor of the license for almost any small or mid-size business, because building a system of your own required large teams and months. That changed: current tools and a far more efficient way of working let a small team build in weeks what used to take a year. The result is that the initial step of the custom system dropped a lot, and the crossover with the license moved earlier.

For a mid-size company in the US or Canada, a nearshore team in Mexico brings that cost down further, with the same working hours: a first module that solves the main pain fits a budget that used to not even cover the implementation of a generic ERP. The full comparison between the two models is in custom ERP vs SAP, Oracle and NetSuite.

Frequently asked questions

Isn't it riskier to pay everything upfront?

You do not pay everything upfront: you pay in stages, each when it is delivered and working. If after the first module you decide to stop, you have a working, paid-for module. With a license, the risk is reversed: you pay for full implementation before seeing anything operate.

What about maintenance if the vendor disappears?

The code and the data are in your own cloud account, in your name. Any competent team can continue it. It is one of the questions worth asking before hiring; there is a list in how to choose a software development studio.

What if my company grows a lot?

A well-built system grows with it. More users do not cost licenses; more processes are new modules added when needed.

How much does the first module cost?

It depends on which process it covers and what it connects to. The honest answer is a quote on your case, with the scope written down. What can be said in general: it is a fraction of what it cost a few years ago, and it is paid when it works.

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At tēo studio we quote custom systems in stages, with the scope written down and the code in your name from day one. If you want to run this math with your numbers, tell us how your company operates and what you pay in licenses today, and we will send back an honest comparison.