Cloud ERP vs On-Premise ERP: A Comprehensive Comparison

If there was an easy answer, we would state it right here. But as with many business solutions, deciding between a cloud ERP and an on-premise version, is a very personal choice. It’s almost a cliché, but it’s true: Find what works for you.

But it’s challenging, right? Technology changes so rapidly that it’s difficult to know what is the best long term decision for your business.

We’re going to help you: Your best bet is to make decisions with as much information as possible on hand. And we summarized the most important below.

Definitions

Let’s start with the basics so there are no misunderstandings.

Cloud ERP

“In the cloud” is becoming a popular term in many environments, also in ERP. If you pick this method your data will be hosted by the ERP service provider. It doesn’t even use the vendor’s own hardware always, but rather your data is held on the internet ‘cloud’.

One of the unique features is how you access this information. You’ll be using your internet web browser. This type is often called SaaS (Software as a Service). You and your employees don’t need to download software to your computers necessarily. Everything happens on the cloud.

Recommended read – “5 Good Reasons to Deploy a Cloud ERP“.

On Premise ERP

This system will be installed on your premises as the name suggests. It will be using your own hardware and servers. What you may not have thought of is that it will also be your IT team managing the data, even though you have a service provider offering you the program.

Now, how do you pick between the two?

Vital Knowledge Before You Initiate ERP

Because there is no right or wrong method to use, don’t let the decision dictate to you. The best starting point is to assess how you currently function and finding an ERP that aligns with it in as many ways possible.

However, if a certain method will be more beneficial (we’ll discuss that below), yes, it’s worth investing in the necessary assets to make it work.

Now, write down your priorities and then see how the differences below will help you achieve your personal goals & suit your preferences.

The Important Differences

We’ll describe each scenario and offer our opinion on the best option. However, don’t simply take our word for it. Remember, it’s about your personal preferences, needs and capabilities too. See how it applies to your unique situation before deciding which one comes out on top from your perspective.

Costs Involved

Your equipment determines how effective your ERP will function and when you have an on-premise ERP the responsibility lies with you:

  • Obtaining hardware and servers
  • Employing capable IT personnel to maintain, upgrade and deployment
  • Managing customizations

This is a huge capital investment at the start of the venture, though you may pay less each month to a service provider. You also have to pay employee salaries.

In contrast, a cloud ERP doesn’t require you to invest in assets and most of the maintenance work is done by the SaaS team on your behalf. You don’t pay salaries so your only expense will be monthly fees.

An added bonus with a cloud system is that your IT personnel can focus on other improvements in your company, rather than maintaining the ERP. This is often a full time requirement, leaving no time for other projects.

Winner: It seems there’s a clear winner as cloud based ERPs will cost you less in the long run, even though you’ll commit to monthly payments. If you already have hardware and servers on hand, you may consider using them though. Some may simply have to opt for the cloud option because of a lack of cash flow.

Changes Over Time

You need to pick an option that makes long term sense. You don’t want a solution only for today, but one that will ensure optimal functioning months and years from now. That means your software must move with the times:

  • Technology changes and you can’t afford falling behind
  • Your business will change and your ERP must keep up

How do the two options support these scenarios?

Upgrades are necessary but they can create problems in on premise ERPs. Usually if you upgrade your software, you’ll lose previous changes, such as customizations your IT team implemented. This means every upgrade requires a tedious implementation and customization process. This often leads to businesses not doing upgrades at all.

On a cloud based ERP upgrades are effortless. The vendor implements the upgrade and everyone using the SaaS instantly has access to the new features. Customizations can usually be incorporated seamlessly.

Of course your staff must be prepared to often see the new changes, with or without prior warning.

There may be challenges to integrate a cloud based system with your unique setup, but the characteristic of quality cloud ERPs is that they are flexible.

Winner: Cloud ERP. If you don’t like sudden changes you may want to implement changes yourself however; as and when you’re ready.

Is There a Better, Faster Performer?

Of course, you want to know how this will affect your day to day functioning, right. Here are a few facts:

  • It’s faster and easier to implement a cloud ERP as you don’t spend time acquiring an infrastructure
  • A cloud ERP is more accessible to employees
  • If you don’t have quality internet connections an on-premise system works better
  • Having multiple users won’t affect the efficacy of a cloud based system

Winner: Your location and internet access determine the winner

Can One Save You More Time Than the Other?

Studies show even after using the cloud method for years, some users still pay up to 50% less compared to creating your own server system and employing the staff it will require to maintain.

Winner: Cloud ERP

What is More Secure?

The industry took its time before businesses decided it’s safe to store sensitive personal or client information on the cloud. It is easier to keep data secure on the cloud, contrary to what many believe.

Today it’s common knowledge that it’s easier and more cost effective to store data safely on the cloud. Vendors often offer backup services, disaster recovery services and industry standard security features. Doing this by yourself requires a lot of effort and money.

Winner: Cloud ERP

Conclusion

These are only a few aspects that play a role in deciding the best option: Cloud vs On-premise. Did you write down your score according to your unique setup? Which method came out on top?

If you need help in choosing the right type of ERP for your business, do contact us.