What’s Your Relative TCO?
Quick. What’s your relative TCO?
Relative TCO is an important measure of ERP success but many companies don’t keep track of it. It’s not conceptually complicated but most ERP vendors don’t gather comprehensive data about the cost of using their software. Maybe they just don’t want to know.
Let’s start with TCO. For us, the Total Cost of Ownership is just that – the total cost. It includes the cost of the software, the hardware to run it, and all the costs associated with implementation, including staff time and outside consultants. It should also include the cost of running the software for two years after implementation. That’s when you start learning the true costs of owning a system – when you use it to run day-to-day operations.
TCO is a good number to know. But it’s not particularly good for comparisons. Companies differ in many respects and these differences affect the cost of ownership. It’s tough to compare apples to apples. That’s where Relative TCO comes in. Relative TCO is simply TCO divided by a company’s annual revenues. By stating TCO in relative terms, we make it much easier to compare one company to another or one vendor to another.
So what should your relative TCO be? Based on the META Group study of 2003, a good number to shoot for is 1%. In other words, your TCO should be no more than 1% of your annual revenues. This is particularly true for companies with more than $200 million in revenues. Below that level, it’s more difficult to achieve the economies of scale that will allow you to get to 1%.
So how does Lawson stack up? Glad you asked. We’ve completed a survey of 155 of our customers who have run our software for two years or more. (Fair warning if you’re about to become a Lawson customer -- we do a lot of surveys of our customer base. We like to know what’s going on).
Based on this survey, here are Lawson’s Relative TCO scores:
- Customers running M3 software = 0.69
- Customers running S3 software = 0.47
- Customers in healthcare = 0.47
- Customers in manufacturing = 0.66
- Customers in public services = 0.74
- Customers in “other” industries = 0.44
Are we proud of these scores? You betcha. We think they’re the best in the world. If you’re comparing Lawson to another ERP vendor, be sure to ask them what their Relative TCO is. If their score is better than ours, we’ll eat our hat.
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