The Licensing Labyrinth#
ERP licensing is among the most complex in enterprise software. Understanding the models, metrics, and contract terms is essential for accurate cost modelling and contract negotiation.
User-Based Licensing#
Named User Licensing#
Each individual who accesses the system requires a licence, regardless of how frequently they use it.
Advantages: Simple to understand and audit.
Disadvantages: Can be expensive for occasional users.
Best for: Systems where most users access daily.
Concurrent User Licensing#
Licences are pooled. A number represents simultaneous users who can be logged in at any time.
Advantages: Cost-effective for systems with many occasional users.
Disadvantages: Users may be blocked during peak periods. Complex to manage.
Best for: Systems with variable usage patterns.
Tiered User Licensing#
Users are licensed based on access level:
Self-service users: Limited to specific transactions (expense entry, time entry).
Limited users: Access to a defined set of modules.
Full users: Access to all functionality.
Consumption-Based Licensing#
Some modern ERP systems offer consumption-based pricing:
Transaction-based: Pay per transaction processed.
Storage-based: Pay for data storage used.
Compute-based: Pay for processing resources consumed.
Advantages: Aligns cost with usage. Scalable.
Disadvantages: Unpredictable costs. Can become expensive at scale.
The Indirect Access Trap#
Indirect access occurs when users access ERP data through another system rather than directly.
Examples#
- CRM system displaying customer data from ERP
- E-commerce platform reading inventory from ERP
- BI tool reporting on ERP data
Vendor Approaches#
Count all indirect users: Some vendors require licences for all users who indirectly access ERP data.
Throughput-based: Some vendors license indirect access based on transaction volume.
Included: Some vendors include reasonable indirect access in standard licences.
Mitigation Strategies#
- Negotiate indirect access terms before signing
- Document all integration points
- Consider middleware that limits direct ERP access
Cloud Subscription Models#
Per-User Subscription#
Monthly fee per named user. Standard model for most cloud ERP.
Tiered Feature Subscription#
Different subscription tiers with different feature sets:
Essential: Basic functionality.
Premium: Advanced features.
Enterprise: Full functionality including advanced analytics.
Industry Edition Subscription#
Pre-configured industry editions with relevant functionality and templates.
Contract Terms That Matter#
Price Protection#
What happens to subscription fees at renewal? Negotiate caps on price increases.
Licence True-Up#
How often must you reconcile actual usage with licensed quantities? Annual true-ups are standard.
Shelfware#
What happens if you reduce users? Can you reduce subscription cost?
Audit Rights#
What audit rights does the vendor have? How much notice for audits?
NZ/AU Considerations#
Currency: Many vendors price in USD. Negotiate fixed exchange rates or local currency pricing.
Local presence: Some vendors may offer pricing incentives for NZ/AU market entry.
Partner margins: Understand how implementation partner margins affect licence pricing.
Negotiation Tactics#
Never accept list price: ERP pricing is highly negotiable.
Bundle aggressively: Larger commitments command better discounts.
Competitive leverage: Use competitive quotes to negotiate better terms.
Time your purchase: End of quarter/year often brings better pricing.
Include growth rights: Negotiate the right to add users at the same discount.
Conclusion: Understand Before You Sign#
ERP licensing complexity is not accidental. It is designed to maximise vendor revenue. Invest time in understanding the models, reading the fine print, and negotiating favourable terms before signing any contract.