If you’ve ever thought about buying a house, you’ll know that such investments are undertaken with the big picture in mind. How will factors like location, transport infrastructure, and access to schools and public services affect the long-term value? There’s a lot to consider.
In business, investments are often made with short-term ROI (Return on Investment) in mind. New technology that will provide instant benefit to your staff, increasing sales and marketing efforts, and in investment in employee training and salaries can all help your business see quick benefits. But is there another important investment that can be your most profitable, long-term?
Is ERP software worth the investment?
ERP (Enterprise Resource Planning) software is an all-inclusive business management system that brings your business data and processes together. Unlike accounting systems which only manage your financials, ERP handles financials, inventory, sales and marketing, purchasing, eCommerce and more, all within the one application.
ERP systems need planning and commitment to implement, but the returns can truly pay off. Looking at the similarities to property, it’s an investment which, from a business perspective, also leverages infrastructure, services (as offered to your customers) and long-term value to provide the best ROI.
In a practical sense, it provides you with single-source data to reduce double-entry and data rekeying errors. You’ll be able to sell more, faster, with a better understanding of customer data and trends, and BI (Business Intelligence) insights across sales and marketing, CRM, inventory, purchasing and seasonal trend data. All of this can help you increase your profit and help you realize a better return on your investment.
What are the benefits of an ERP System?
Improved efficiency through process automation
ERP systems can automate many routine tasks, reducing manual work and the potential for human error. This could include automating invoice processing, inventory updates, or generating reports.
Better data integration across departments
ERP provides a central database that connects various departments, ensuring all teams work with the same up-to-date information. For example, sales and inventory teams can see real-time stock levels, preventing overselling.
Enhanced decision-making with real-time data
With all data in one place, managers can access comprehensive reports and analytics instantly, allowing for more informed and timely decisions.
Increased productivity and reduced errors
By eliminating the need for manual data entry across multiple systems, ERP reduces duplicate work and minimizes data entry errors.
Improved customer service and satisfaction
With access to complete customer information, including purchase history and preferences, staff can provide more personalized and efficient service.
Better inventory management and cost control
ERP systems can optimize inventory levels, reducing carrying costs and preventing stock outs or overstocking.
How to Calculate the ROI of an ERP System
- Identifying all costs: This would include not just the software cost, but also hardware upgrades, implementation services, training, and ongoing maintenance fees.
- Quantifying benefits: This involves estimating cost savings (e.g., reduced labor costs, improved inventory management) and revenue increases (e.g., from improved customer service or faster order processing).
- Timeframe considerations: Explain that ERP benefits often accrue over time, and ROI calculations should consider both short-term and long-term impacts.
- Measuring intangible benefits: Discuss how to assign value to less quantifiable benefits like improved decision-making or enhanced customer satisfaction.
ROI formula
ROI = (Net Benefits – Cost of ERP) / Cost of ERP * 100
- Net Benefits: The total financial gains from the ERP system, including cost savings and increased revenues.
- Cost of ERP: The total investment in the ERP system, including all associated costs.
- Interpretation of results: Explain what different ROI percentages mean and how to use this information in decision-making.
Push ROI Further In the Cloud
Businessman considering a brainstorm in cloudy desert setting. Traditional on-premise ERP systems require IT server and infrastructure and dedicated IT staff as part of the investment. Cloud ERP, however, also known as SaaS (Software as a Service) ERP, allows you to gain all the same benefits of traditional ERP systems, without incurring large setup costs – boosting your immediate ROI considerably. Have a read of our article The Real Costs – Cloud and On-Premise ERP Compared for more information on the associated cost differences between these types of ERP systems.
Cloud ERP by nature is quicker and easier to set up, which can reduce your implementation time and the resources needed. With many vendors offering rapid implementation options, you can see even faster ROI with less disruption to the business. Cloud deployment has also made ERP accessible to all types of businesses, regardless of size or physical location.
The Real-Time Quick Win
As soon as you’ve implemented a cloud ERP, you’ll be able to start leveraging real-time data. With live reports and KPIs in place, seeing your up-to-the-minute business position is as simple as loading your cloud ERP dashboard. Making agile business decisions that react quickly to market changes is a critical part of the modern business environment. There’s no measure on how much business benefit you’ll see from gaining live, instant insights, as soon as your cloud ERP is set up and implemented.
The Mobility Quick Win
There’s also the immediate advantage of mobility. Cloud ERP provides staff with secure system access – anywhere that they have WIFI or a mobile internet connection. By equipping your sales force and other staff with accurate and up-to-date information, they can continue selling and continue being productive no matter where they are. Reps who are out on the road meeting customers can provide accurate stock and order information, copies of invoices and update CRM and sales data without ever calling back to the office. For more ideas on mobile productivity, see our article 5 Essential Strategies to Boost Mobile Productivity.
Long-Term Win: Data Consistency
One of the major downfalls of using multiple systems for different parts of the business is ending up with splintered data, double entry of data and manual rekeying errors – which all take time and often expertise to resolve. Using the one, unified system allows you to work with one source of truth. Long-term, this provides enormous value in terms of the time and effort saved – both in reducing manually keyed data and fixing data-related errors.
Having single-source data also means having consistent data. Regardless of who a customer speaks to within your company, interactions are logged and tracked in the CRM database as they happen. Updates are instantly available to Sales, Customer Service, Accounts, and anyone with touchpoints to that customer. When it comes to pricing discussions, having one source of true data can enhance the business’ profitability significantly. Why? Because the consistency of information builds trust with your customers. That trust encourages repeat customers who come back and buy more.
Long-Term Win: The Customer Experience
Close up low angle view of a man working from home on a laptop computer sitting at a desk surfing the internet. The customer experience is key to growth and success for any organization. With sales and customer service staff able to quickly access complete and accurate customer information, they can engage with those customers on a deeper level and build meaningful relationships. By bringing sales, marketing, and CRM together, identifying customer buying trends and anticipating interest in new product lines becomes so much simpler. Marketing efforts can be refined and segmented, taking all relevant data into account, empowering you to deliver the right messaging to the right customers, at the right time.
Gaining a unified view of customer activity also extends to after-sale support. With integrated support functionality, cases logged by customers are all recorded within the same CRM customer records. See better insights into what’s working for your customers and what’s presented challenges to support meaningful conversations between sales, support and other staff and your customers.
Also take into account integrated eCommerce functionality that allows customers to view live product information, stock availability, order status, order history and invoices. You can not only reduce the workload of your team who would normally provide this information to customers by phone or email, but you’re also making it easy for those customers. They gain the convenience of accessing all their information, wherever they are, and can easily save and re-order favorite items or carts at a time that’s convenient for them.
5 Tips to Increase the ROI of an ERP System
1. Ensuring proper training
Discuss the importance of comprehensive training programs for all users to ensure full utilization of the system’s capabilities.
2. Customizing the system
Explain how tailoring the ERP to specific business processes can increase efficiency and user adoption.
3. Regular updates and maintenance
Emphasize the importance of keeping the system up-to-date to benefit from new features and security enhancements.
4. Leveraging data analytics
Provide examples of how businesses can use ERP data for predictive analytics, trend analysis, and strategic planning.
5. Integrating with other systems
Discuss how connecting ERP with other business tools (like CRM or e-commerce platforms) can further streamline operations and increase overall ROI.
What Are You Waiting For?
In an effort to keep ahead of the game, businesses can find themselves stuck in an ongoing cycle of piecemeal investments or adding individual systems for different parts of the business. Some investments aim at driving productivity but aren’t always related to profitability. These can include computer and telecommunications hardware upgrades that become outdated every couple of years or standalone software packages such as Visio and other workflow management tools. But the costs and inefficiencies can mount up across various sections of a business as it continues with fragmented operations.
Making an early start with a cloud ERP will not only see your business benefit from ROI sooner, but it could mean side-stepping multiple, unnecessary systems and applications – those that don’t interact with each other, manual data entry and rekeying effort, increased error rates and splintered data. All of these inefficiencies cost the business valuable time, money, and ultimately profitability.
