Tiers of ERP

Research firms divide the software market into three tiers of ERP. 

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However, classification by vendor revenue is not useful for SMEs looking to buy their first ERP. DigitalFirst.com has created a modern tiering system below based on average subscription price. It also includes, for reference, accounting software and inventory management software. 

Accounting software can add extra functions that mimic an ERP platform by connecting to applications in their enormous ecosystems. Inventory management software also includes some features found in ERP’s advanced inventory modules. 

Neither accounting software nor inventory management software are effective replacements for a full ERP solution. However, small businesses can use these tiers to buy more time until they are financially and operationally ready to move to an ERP.

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Tier 1 ERPs - the Giants

Very large multinational corporations and governments use tier 1 ERPs built to handle operations at the largest scale. These ERPs can handle billions of transactions, customers/citizens, or products. They are the only tier of ERP that is run in data centres owned by the customer (on premises) as well as the cloud, usually to meet data governance. These ERPs are typically heavily customised to meet the unique needs of the customer. 

Tier 1 ERPs are a reminder that all ERPs used to be like this – enormously powerful yet also cumbersome, horrendously expensive and risky to implement. 

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Examples: SAP, Oracle ERP, Microsoft Dynamics ERP Finance and Operations

Typical users: Banks, governments, airlines

Annual subscription cost (indicative): $500k to $m

Implementation cost (indicative): $250k to $m

Time to implement: 18 months or more

Features: 

• Unlimited scale
• Unlimited customisation
• Extensive implementation times

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Tier 2 ERPs - the Multinationals

Tier 2 ERPs are used by international organisations and predominantly sold as cloud-based deployments. They are flexible and powerful enough to replace Tier 1 ERPs in many situations.

These ERPs are well suited for companies that have ambitions to expand into other countries or manage manufacturing in places like China or Vietnam while selling locally or internationally. They have a single database that manages multiple entities or subsidiaries which makes it easy to consolidate financial reporting across the whole organisation. Some also preconfigure the finance modules for tax jurisdictions of various countries and are available in multiple languages. 

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Examples: Oracle NetSuite, Sage Intacct, Acumatica

Typical users: Large franchises, global distributors, national non-profits, multi-state retailers

Annual subscription cost (indicative): $30k-$500k+

Implementation cost (indicative): $100k-$1m+

Time to implement: 3 months to 12 months

Features:

• Multi-entity/subsidiary
• Multi-tax jurisdiction
• Multi-lingual

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Tier 3 ERPs - the Nationals

Some of the most recently released ERPs target small and medium sized companies and are the most affordable. They typically only support one entity per database. 

These ERPs are best suited to companies that need the power of an ERP to manage their existing operations or scale their product lines but don’t have plans to expand into new geographies. 

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Examples: Microsoft Business Central, Odoo

Typical users: SMEs in retail, wholesale, non-profits

Subscription cost (indicative): $5k-$100k+

Implementation cost (indicative): $20k-$100k+

Time to implement: 3 months to 12 months

Features:

• Most affordable full ERP
• Built for SMEs
• Typically one database per entity

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Tier 4 ERPs - Inventory apps

Sometimes a business needs a heavy inventory solution rather than a full ERP. Inventory management applications have become extremely powerful, offering many of the benefits that you would find in an ERP’s inventory management module. You can manage multiple sales channels, stock locations, warehouses and assembly/light manufacturing partners without the hassle of moving to an ERP. 

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Examples: Dear Inventory, Unleashed, Cin7, TradeGecko

Typical users: eCommerce, field services

Subscription cost (indicative): $3,500-$12k

Implementation cost (indicative): $5k-$30k

Time to implement: 3 weeks to 12 weeks

Features:

• Powerful inventory management with minimal implementation risk
• Relatively low cost – great value
• Integrates with existing accounting software

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Tier 5 ERPs - Accounting + ecosystem

Cloud accounting software can’t replace an ERP. However, the leading platforms have ecosystems of over 1,000 applications that can extend the core accounting ledger into industry functions at a very affordable cost. 

In fact, companies using older generations of ERPs may find that they can run just as effectively (for a lot less money) on modern cloud accounting software instead. 

Software vendors in this tier have also invested heavily in automating bank reconciliation and transaction management. Often it is faster and more accurate than the equivalent functions in ERPs. 

For a more detailed comparison, read What is the difference between accounting software and ERP?

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Examples: Xero, QuickBooks Online, MYOB Business

Typical users: Small businesses in all industries

Subscription cost (indicative): $700-$2400

Implementation cost (indicative): $1k-$3k

Time to implement: 3 days to 12 days (accounting software only)

Features:

• Highly extensible through ecosystem software
• Excellent automation in financial accounting tasks
• Most affordable