The more sales a Shopify business generates, the more data it produces. Eventually, the volume of transactions to track — and subsequent data sources to maintain — becomes time-consuming, costly, and largely prone to human error. So, it’s no surprise that for many 7-and-8-figure eCommerce businesses, it’s not a question of if they’ll switch to an enterprise resource planning (ERP) software, but when?
The common theory is that switching to an ERP is something to consider once a business reaches 7-figures in sales. But is a solution so complex (and expensive) a necessity for a 7-figure Shopify business or just another costly distraction to implement and maintain?
In our experience, for most businesses doing less than $10 – 20 million in sales, implementing a full ERP solution is not always the only option.
There are other and more affordable ERP alternatives available to 7-figure and low-8-figure eCommerce businesses these days.
In this post, we’re taking a closer look at what an ERP is, when to use one, and some popular ERP alternatives for eCommerce businesses.
What is enterprise resource planning?
Enterprise resource planning (ERP) is an accounting software system that consolidates and controls all of the key processes involved within business operations on a single system. ERP integrates all of the essential backend accounting, supply chain, inventory, and operational processes of an eCommerce business.
ERP solutions have significantly evolved throughout the years, and most are now web-based or cloud-based applications that weave together data from finance, production, distribution, and more.
In other words, ERP software is the glue that connects the various software and technologies used throughout each part or department of a business.
What are the most popular ERPs?
Whereas previous iterations of ERPs were installed on physical client servers, modern ERPs leverage cloud-based software that allows for remote, web-based access. Many of today’s popular ERP solutions are supplied by familiar names in the marketing and finance tech stack, like Oracle and Microsoft.
Take a look at the most widely-used ERPs on the market today.
NetSuite dubs itself the number one cloud ERP platform; however, it’s important to note that NetSuite is a child company of Oracle, the former being acquired in November 2016. The Netsuite Enterprise Resource Planning System currently serves more than 27,000 customers, among the likes of Ambassador Foods and JPC Equestrian.
Prominent NetSuite features include global business management, which allows for a real-time view of multiple currencies, taxation rules, and reporting requirements across geographies and subsidiaries.
Microsoft Dynamics 365
Today, Microsoft Dynamics 365 allows organizations of all sizes to incorporate a system of integrated applications to manage operations. More specifically, Microsoft Dynamics 365 for Finance and Operations is a robust ERP to streamline essential processes.
Customers turn to Microsoft Dynamics 365 to integrate financial processes into core processes, like budget control and accounts payable. Current Microsoft Dynamics 365 customers include Coca-Cola Beverages Africa and the international law firm, Fieldfisher.
SAP Business One
SAP is a German multinational software corporation that has dominated the enterprise resource planning software market for more than 40 years. With 50,000 customers to date, SAP provides software compatible with small, midsize, and large organizations among 25 different industries. Current SAP customers include the apparel company Carhartt and major beauty retailer Sephora.
Oracle Fusion Cloud ERP
Much like SAP, Oracle is a mainstay in the ERP market, and for a good reason. Oracle was named a Leader in the Gartner Magic Quadrant™ for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises five years in a row. Plus, current customers include Square, Lyft, FedEx, DropBox, and major auto manufacturers like Honda and Mazda.
Oracle Fusion Cloud features an accounting hub, reporting and analytics, payables and assets, revenue management, and more.
In comparison to the above ERP software, which all fall under the umbrella of legacy companies, Sage Intacct comes from an American corporation of the same name. Though Sage Intacct may not be as popular as other ERP providers, the platform is widely known for its ease of use and flexibility. Additional modules can be added to the software month-to-month to remain agile. Even more, users have the ability to build custom applications to replicate current company processes on one, streamlined platform. Current Sage Intacct customers include Culver’s, Meals on Wheels America, and WebPT.
When to use an ERP
For eCommerce companies, in particular, here are four tell-tale signs that your company may be ready to migrate to an ERP.
1. Overwhelming volume of transactions
It’s likely time to invest in an ERP if your current volume of transactions overwhelms your current system. For instance, while Xero technically has a soft limit of 1,000 individual transactions per month — like sales, purchases, and payments — meaning you should stay below this limit to maintain optimum performance, most companies don’t need to migrate off Xero until they are doing in excess of 25,000 transactions per month. At that point, the platform might become slow and unresponsive enough that it impacts daily productivity.
2. Complex business needs
Another sign it’s time to pivot to an ERP is if you have a complex business need that your current ecosystem cannot deliver. A common example for eCommerce is absorption-based costing or ABC costing, which allocates fixed overhead costs to an department based on an allocation system
For instance, a Shopify store may sell to a number of different countries, such as Australia, Canada, and America. This store may prefer a system through which they can look at their profit and loss in each country, but for certain expenses, they want to use assumptions around expenses. Typical applications will not allow this function, but ERP solutions enable users to set in assumptions around cost-based drivers that will then allocate office costs to the other countries.
3. Drill-down reporting requirements
Reporting is the driving force behind operational improvements, as well as accurate forecasting and appropriate budgeting. It may be time to switch to ERP software if your business desires drill-down reporting requirements that exceed the standard drill-down components offered by Xero. Continuing with the international Shopify example above, an ecommerce business may want to report sales by country as well as report on sales by product size.
An accounting platform like Xero can handle two drill-down requirements, but it cannot handle a third dimension. For instance, the Shopify business may want to report by the color of the product that they sell, green versus blue, but Xero can’t support the third dimension down. In comparison, most ERPs can go nine dimensions down and others are unlimited. If you’re looking for incredibly granular reports with multiple dimensions, an ERP is the answer.
4. General process inefficiencies
Aside from the above criteria, you may want to consider pivoting to an ERP if your existing processes have simply become inefficient or siloed.
For instance, departments with interconnected processes, like finance and sales, shouldn’t be kept in silos. Lack of shared metrics causes expensive redundancies and outdated financial statements. Even more, you may be wasting funds on software integration, such as license fees and training, for software that barely functions well together. All things considered, it’s likely time to consolidate your processes for greater efficiency.
The downsides of using an ERP
While ERP solutions can be endlessly customizable, it is also true that they can end up being a $1M+ blank canvas. These customizations can become a disadvantage since it takes a ton of resources to have an ERP installed and maintained.
For instance, most ERPs involve a minimum investment of $100,000 USD, the majority of which is implementation labor. An ERP also involves hefty monthly licensing costs, which are almost always on a per-user basis depending on the number of modules you’ve purchased and the number of employees who need access. For instance, you may have purchasing, sales, general ledger, and fixed asset modules, each with its own individual cost and fees for the number of users that need to access each of those modules.
Secondly, the maintenance costs for ERP support can be quite steep. Once your ERP has been implemented, and your team has a problem or needs some customization done, the ERP consultants tend to be very highly priced (often $300 or more). Not to mention, you may need to join a waitlist to receive support, which can potentially slow operations while you wait to remedy the issue or install a module.
Lastly, an ERP solution is not guaranteed to eliminate inefficiencies within an eCommerce business, especially if your company fails to restructure old working processes. The implementation of an ERP will require a total overhaul of how your business is organized, otherwise, you risk having incompatible technology.
An alternative approach to ERPs
If you’re not ready to sacrifice your current processes to adopt an ERP, you might want to look into ERP alternatives.
While it’s true an ERP can become a singular source of workplace processes, it’s just as possible to replicate this approach with an accounting and inventory management tech stack for Shopify businesses. Rather than invest in a $100,000+ product, your business can benefit from a much more cost-friendly method of streamlined operations by building a tech stack yourself that can cost anywhere from $500 – $2500+ per month.
Apart from cost, ERP alternatives are highly flexible — and not just because they also allow for customization. By building your own tech stack, you retain the ability to implement modifications as your company changes or grows. Similarly, you can easily remove software from your tech stack if it no longer serves you, without worrying, you’ll need to wait for ERP tech support.
Alternative ERP tech stacks also remove the dependency of housing all of your processes on one platform (i.e. a single point of failure).
A build-your-own tech stack means you have the freedom to plug your data into as many systems as possible until you find what best matches your needs.
Here is an example of what an effective ERP alternative tech stack could look like for a seven or eight figure eCommerce Business:
- Shopify Plus – “command center for your eCommerce sales and operations”
- A2x – to batch sales data into Xero
- Xero – Provides essential accounting and financial reporting capabilities. These tools are necessary for financial management, adequate revenue, and cash flow forecasting and to remain compliant at tax time. For international businesses, Xero offers multi-currency features as well as simultaneous reporting for multiple geographical locations.
- A cloud inventory platform— such as Locate, Dear or CIN7— A cloud inventory platform completes the trifecta of software required to build an ERP alternative. This inventory system will manage all non Shopify sales, such as POS and B2B
- Approval Max – to manage controls around your accounts payable
- Dext/Hub Doc – to process all invoices for accounts payable
As the name might suggest, cloud inventory platforms are completely remote and accessible from anywhere in the world, which is ideal for international Shopify businesses or those with a dispersed team. These tools seamlessly connect all of your sales channels to ensure your customers are never surprised when an item they’ve purchased is unfilled due to insufficient stock.
The inclusion of a cloud inventory platform in your ERP alternative also helps businesses manage their supply chain in real-time, a feat that’s beyond necessary in today’s turbulent market. Even more, automation abilities streamline logistics and save team members time and money.
If you thought that switching to an ERP would be inevitable once your Shopify business exceeds 7-figures in sales, think again. The market is rich with ERP alternatives that allow businesses to pick and choose the appropriate software to streamline and simplify business operations. Rather than splurge on a high-ticket ERP, build a robust solution for your unique business challenges at a fraction of the cost.
At Bean Ninjas, we give opportunities for our team members to grow professionally while enjoying the freedom to work anytime and anywhere. Contact us to learn more about our incredible team and how we can help you.