On-Premise ERP Software vs. Cloud Solutions

Last Updated: May 26th, 2022
Researched and Written by: Lexi Wood

Enterprise resource planning, better known as ERP, is an integrated suite of business applications. These software suites contain comprehensive tools useful for streamlining back-office tasks from basic accounting to inventory control.

ERP software is used by businesses of every size and across every industry. In recent years, cloud-based ERP systems have become increasingly popular, particularly amongst businesses which allow for remote work.

Wondering what makes them different? First, let’s cover the basics of what makes on-premise deployment different from cloud-hosted solutions:

What is On-Premise ERP Software?

On-premise software, sometimes shortened to “on-prem software”, generally means any software solution installed onto local hardware systems or a dedicated data center. In essence, any computer program which you can only access from on-site or in-office computers is “on premises”.

On-premise ERP also means back-office services are limited only to those workstations where the software is installed. One computer might have software installed in order to provide employees a shared area for those specific-ERP tasks.

What is Cloud ERP Software?

Cloud-based software is hosted remotely in a third-party data center not controlled by the client. Some browsers may be better suited for the software than others and apps allow access on mobile devices. Cloud ERP software is often used by companies with multiple locations which want to maintain real-time communication. In recent years, they have gained additional popularity for allowing remote users full access from anywhere.

Since software as a service (SaaS) is continual, companies pay for service on a monthly, quarterly, or annual basis. In some circumstances, multi-year contracts are available.

Which Deployment Option is Better?

Cloud-based software has exploded in popularity over the last few years. Yet there are still benefits to using an on-prem ERP solution. Here are some of the key differences in each deployment method:

Considerations On-Premise Cloud
Accessibility Only accessible on-site or on a specific device Accessible anywhere with internet access
Cost Usually a one-time perpetual license fee Monthly or annual subscription payments
Customization Solutions may be fully customizable depending on vendor Add-on modules may be available for an additional fee
Deployment Speed Can take a few weeks to months to implement May take months to years to fully install
Ease of Use May include user training (in-person) May include user training (remote)
Security Data protection is the responsibility of the business Data is hosted and protected by the developer
Support Support may be limited to a warranty period Support is usually included with the subscription

Let’s delve a little deeper into the pros and cons of each:

On-Premise ERP Pros

  • Customization: On-prem ERP solutions are also a little easier to customize to address specific industry-related business processes. Vendors can take your exact needs into account when developing your ERP software package.
  • Ease of Use: Training for users is often included in implementation costs for on-premise ERP solutions.
  • Security: On-premise software systems are highly secure since they are hosted on-site through local servers.

On-Premise ERP Cons

  • Accessibility: The biggest con of on-premise ERP software is the inability to work remotely. An on-premise solution has limited accessibility compared to cloud ERP software. Yet there are situations where on-prem ERP is better suited for a business.
  • Cost: On-premise solutions are also more expensive, at least initially. Implementation can be costly, requiring employee training. However, these costs may include coverage for long-term support and performance updates.
  • Security: And while on-prem solutions are easy to secure, it is up to the individual business to protect their servers.
  • Support: A perpetual license agreement for an on-premise software means you may not be eligible to receive upgrades, even if they improve service. And you’ll need your own IT team to handle maintenance not covered by warranty.

Cloud ERP Pros

  • Accessibility: Cloud-based ERP systems allow employees to access services from anywhere, at any time. If there is an internet connection, there are no limitations to where work can be done, allowing businesses to employ remote workers no matter their real world location.
  • Costs: Cloud-hosted ERP vendors charge on a subscription basis, meaning you only pay for what you want when you use it.
  • Customization: While many cloud-based solutions are shrinkwrap, add-on modules add more ideal functionality.

Cloud ERP Cons

  • Costs: Cloud ERP solutions operating costs can add up over time. 10 years of service can eventually cost as much or more than a one-time perpetual license fee for an on-premise ERP, especially if any add-ons are necessary for desired functionality.
  • Customization: As discussed above, add-on modules with additional features can add to total costs.
  • Security: While cloud-based systems are highly secure, they are more vulnerable when it comes to human error. And data security depends on the vendor - if they are threatened your data is threatened.
  • Support: Updates and improvements can lead to downtime, though SaaS providers will usually send out warnings to their customers with estimates for when the system will be working again.

Final verdict:

Notice how there’s a lot of overlap between the pros and cons of each? As it’s clear by now, one deployment method isn’t necessarily better than another. It all comes down to factors like your business needs, industry standards, and budget.

Hybrid ERP Deployment

For those unsure of which to pick, there is a third option: going hybrid. A hybrid ERP software mixes the best of on-premise and cloud-hosted applications. Increase security with on-site servers while maintaining remote accessibility through apps or web browsers.

However, hybrid solutions can be more expensive since they are extensively customized to your business. They are also harder to maintain since an issue can occur on either end.

Other Factors for Selecting Your ERP Deployment

Beyond the deployment methods themselves, there are several other factors which will determine which style of ERP is ideal for your setup:

Budget

Of course, you need to know your budget before seeking software. For some companies, the capital expenditure of a perpetual license is nothing compared to the long-term operating budget of SaaS.

You may want to make one big-time payment upfront or continue to make small payments over the years. You’ll need to decide if you’d rather pay high upfront costs or risk a higher total cost of ownership in the future from a subscription plan.

Size

Are you operating a small business or new startup? Or are you running an international enterprise? If you work in a small mom-and-pop shop, an easy to implement shrinkwrap cloud solution with basic business operations is likely all you need. Small to midsize businesses looking for long-term scalability tend to prefer cloud ERP systems which can grow with them.

Users and Facilities

How many users, workstations, or facilities will be using this ERP? Cloud-based subscription models are best for nationwide or global companies with locations spread across time zones looking for ways to coordinate communication.

Tech Savviness

Everyone has experienced technical difficulties, even the best ERP software on the market. While most software companies offer some level of IT support during implementation, additional help may not be available for free if you don’t opt for a warranty on an on-premise ERP.

If you’re particularly skilled at coding your own IT infrastructure, then open source software may be best for adding your own personalization to your ERP package. However, vendor support may be difficult if you change the software yourself.

Conclusion: Cloud ERP vs On-Premise ERP Systems

If your company needs to select an enterprise resource planning (ERP) system service provider, knowing the difference between cloud and on-premise deployment can help you make the right choice.

Cloud vs On Prem ERP Decision Tree
Finding the best ERP solution for your business is easier than ever.

Reviewing the differences mentioned above, you might decide on an on-premise ERP software in order to protect your data. Or you may prefer an entirely cloud-based ERP solution to facilitate remote access to various applications. And, depending on your business, you might decide a custom hybrid ERP system will offer the most benefits to your company.

Selecting a new ERP software and deployment model can take time. Request a free ERP software recommendation from Software Connect.

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