Cloud ERP vs. on-premise ERP: Differences, pros, and cons

As your business grows, you need to implement various software solutions to manage operations –– making it easy to end up with separate software solutions for accounting, payroll, manufacturing, inventory, and customer resource management. 

However, it can get challenging to keep tabs on all these applications. Thus, it’s time to graduate to an enterprise resource planning (ERP) solution that brings different applications together in a unified solution. But which is best for your business?

There are various factors to consider when choosing between cloud vs. on-premise ERP solutions. While many businesses favor cloud ERPs for their low start-up fees and fast implementation, on-premise ERPs may still be the better choice for some businesses, as they allow for greater control and customization. 

Read on to discover the differences between the two systems, the pros and cons of each, and how to choose the best ERP for your business.

What is on-premise ERP?

An on-premise ERP is a resource planning solution that’s installed and operated by the business on-site. The software is generally paid for upfront, customized to the business’s needs, and then managed by an internal IT team. For large enterprises that require a high degree of control over their data, an on-premise ERP is a good option.

Pros

Hosted locally on a business’s servers, an on-premise ERP is highly customizable and secure. Large-scale enterprises may choose an on-premise over cloud-based ERP as it allows for total control over data. Here are some benefits of an on-premise ERP:

• Customization: Because on-premise ERP systems are hosted entirely on-site, they offer more flexibility and customization options. 
• Single payment: Rather than continually paying for the service, on-premise ERPs are usually paid for in full upon installation. 
• More reliable: Because on-premise ERPs don’t rely on external servers, they’re less likely to have connectivity issues. 
• Greater security control: With all data stored locally, data security and protection is handled internally.

Cons

One of the biggest downsides to an on-premise ERP is the price of implementation. Costs are paid upfront, which may not be feasible for every business. Here are some additional disadvantages of an on-premise ERP:

• High start-up costs: On-premise ERPs are paid for entirely when they’re set up, which can be very expensive. 
• Requires a dedicated IT team: A dedicated IT team is required to maintain the ERP servers and stay on top of updates and security — not to mention the associated costs of having a dedicated IT team. 
• Less scalability: On-premise ERPs are limited to the software they’re implemented with, meaning they will eventually no longer be able to upgrade and grow with your business. 
• Slow implementation: Implementation can be quite time-consuming because it requires server installation.

What is cloud ERP?

A cloud ERP is hosted by a third-party vendor that manages all software operations on behalf of the business. The business accesses the software through a website or app — a service referred to as software as a service (SaaS). Cloud-based ERP services work well for enterprises of various sizes.

Pros

Many businesses choose a cloud ERP because it costs far less and is quicker to implement than on-premise ERPs. Some organizations also prefer outsourcing planning. Here are some benefits of a cloud ERP:

• Cost-effective: With monthly payments and no costs associated with infrastructure, cloud software costs less.  
• Little to no maintenance costs: Any maintenance costs are built into the fees, and there’s no need to hire your own IT team to manage the ERP. 
• Scalability: Cloud-based ERPs can easily scale with your business as they’re not limited by physical hardware. 
• Fast implementation: Cloud ERPs can be ready to use in as little as a few months versus six months or longer for on-premise. 

Cons

Cloud ERPs may not work for every business. They require monthly payments and also come with less control. Here are some additional disadvantages of cloud ERPs:

• Continual payments: While cheaper upfront, a cloud ERP is a service that requires regular payments. Over time, this may cost more than on-premise. 
• Less customization and control: Customization is limited, and clients can’t make any changes to the software to meet their needs. 
• Reliant on the internet: Cloud-based ERPs are entirely reliant on an internet connection, making them potentially less reliable. 
• Less security control: While cloud ERP systems do have rigorous security and data protection in place, they’re hosted entirely online and that takes the security control away from you as the business.

Cloud vs. on-premise ERP

The biggest difference between on-premise and cloud ERP is where the software is hosted — either on-premise or on cloud servers. Additional considerations include start-up and ongoing costs and how reliable the system is. Here’s an overview of factors to consider.

How to choose between cloud-based ERP vs. on-premise ERP

The key decision lies in whether you prefer to manage your ERP system internally or leverage a cloud-based solution with provider management. It’s important to understand the limitations of both types of ERP and how they may impact your business.

Weigh factors like upfront costs versus ongoing fees, customization possibilities, and scalability to determine the best fit for your business. In essence, it boils down to choosing an in-house or outsourced ERP model.

Consider an in-house, on-premise ERP if you:

• Prefer to pay upfront for your solution
• Require a high degree of customization
• Have an internal IT team that can handle maintenance and security
• Don’t want to be reliant on the internet 

Consider an outsourced, cloud-based ERP if you:

• Prefer to pay a lower monthly fee
• Require a scalable solution
• Want fast implementation
• Don’t want to have to worry about maintenance or upgrades

Manage your business with Cin7

When deciding on an ERP for your business, it’s crucial to keep your needs at the heart of your decision. With cloud vs. on-premise ERP, the decision comes down to whether or not you’re comfortable with outsourcing planning. If you are, there are many great SaaS options available. 

With Cin7, you can manage your production, inventory, warehousing, sales, logistics, and even accounting. You can easily integrate new sales channels and effortlessly manage them. Thus, you get better supply chain visibility and much-needed flexibility to outsmart your competition. 

Cin7 provides a modern cloud-based solution at a fraction of the cost of on-premise ERPs. Request a demo to learn more about our product.