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SAP Distribution Blog

The Math of Start & Grow and the Agility of the Cloud

Posted by Gary Feldman on September 7, 2017

The first part of the series talked about low-hanging fruit, the learning curve, and how quick wins and the momentum of positive change can improve your return on systems investment. As an accountant, I can do the math and show you how the SAPDistribution.com approach radically changes the equation.

Part 2 of a 2-part series

Our sample customer is a small distributor with three in-house users. A typical license fee in a traditional implementation may be $5,000 with “Starter Pack” licenses for a robust ERP system. Because of the flexibility of powerful software, a consultative engagement for this type of software starts at $25,000 with a “standard” implementation running from $35,000 - $50,000 without customization. (Although these fees do include some tailoring of the software to a particular customer situation through the myriad of configuration options available.)

In the figure below, the top two lines represent the “Start & Grow”℠ implementation methodology with rapid implementation. The secret sauce of industry specific pre-configuration and tailored coaching sessions creates the reduced cost of services. The base package starts around $10,000 and is typically concluded in the first two months. The figure also includes two service packages in months 4 & 7 that drive additional value through improved margins or increased sales. The bottom two lines represent the traditional services approach where all services are rendered in a consultative manner and in a single project with a 3-6 month implementation timeframe.

Cash Flow Comparison Agility of the Cloud 

In both examples, we have a reduction in the carrying value of inventory of $100,000 over a 20-month period starting 2 months after system implementation. In addition, sales increase by $1,000 per month starting in the 6th month, which drives the cash flow savings.

As you can see, Start and Cloud drive speed to ROI through the rapid implementation and lower upfront cost. With perpetual licensing, you get a hit every year for annual maintenance, which mitigates some of the longer term benefits of lower software cost for purchase vs. lease (you'd break even in 3-4 years).

The bottom line is that if you're making change for financial benefits, putting the system in the cloud typically has a quicker return in investment. If you go with a cloud subscription, over the 10+ year life of your system, you may pay more for the software, but as an accountant, I can show you how it can really cost less!

To learn more about SAP Distribution click here!


Topics: Cloud, Agility of the Cloud

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