On-Prem vs. Cloud ERP Solutions for Your Business

The right enterprise resource planning (ERP) solutions empower product-centric brands to streamline their operations and improve gross margins. They provide business leaders with timely insights that they can use to accelerate their decision-making and promote long-term organizational growth. 

If your business is currently exploring ERP solutions, one of the most important choices will be whether to choose an on-premises (“on-prem”) or cloud-based platform. Understanding the benefits, challenges, costs, and strategic implications of both models is key to maximizing your return on investment (ROI) and condensing your time to value. 

On-Prem vs. Cloud Enterprise Resource Planning Platforms

It seems all modern businesses are moving everything to the cloud–and there’s good reason. Organizations are collecting more data than ever, and transitioning to a cloud solution promotes scalability and adaptability in a rapidly changing business environment. That doesn’t mean that on-prem ERP solutions are necessarily out-of-style. In fact, they still provide unique benefits that your business may find advantageous. 

Here’s a closer look at both options and what each can offer your company:

What Is an On-Prem ERP?

On-prem ERP solutions involve hosting software on physical devices within your company’s facilities. Your organization maintains full control over the infrastructure, data, and security, which makes this approach appealing if you are subject to stringent compliance regulations or rely on highly customized processes.

What Is a Cloud ERP?

Cloud ERP solutions operate on remote servers managed by a third-party provider. Much like other cloud-based applications, cloud ERP platforms offer virtually unlimited scalability; you can requisition more computing resources, add users, or integrate additional features and tools as needed. 

Theoretically, you could add users and integrate new features to an on-prem ERP as well, but the process would be far more time-consuming and costly. Not to mention, cloud-based platforms also offer remote accessibility, which is a huge advantage if you maintain a remote, hybrid, or decentralized workforce. 

Lastly, cloud solutions provide consistent access to the latest features. When the platform’s developer releases updates, you should be able to take advantage of them instantly, allowing your business to use the latest technology to improve efficiency. 

Pros and Cons of On-Prem ERPs

To recap, on-premises ERP solutions offer a few undeniable benefits, including the following:

  • Data Control: Your business will have complete ownership over its data 
  • Customization: You can extensively tailor the platform to meet the unique needs of your business 
  • Regulatory Compliance: Your company can ensure you’re meeting necessary security parameters within your industry

However, you will encounter some potential disadvantages, such as:

  • High Upfront Costs: On-prem platforms require a significant investment in hardware, software licenses, and IT infrastructure 
  • Ongoing Maintenance: Your business is responsible for all updates and security patches 
  • Limited Scalability: Expanding upon an on-prem ERP demands additional physical infrastructure and long-term planning 

It is vital to conduct a cost-benefit analysis before committing to an on-prem ERP implementation. This will help your organization determine whether it is a worthwhile investment. 

Pros and Cons of Cloud ERPs

In simplest terms, cloud ERP programs offer the following benefits:

  • Cost-Effective: The subscription billing model minimizes your upfront costs 
  • Scalable: Cloud platforms offer near-unlimited scalability 
  • Automatic Updates: Cloud providers handle updates, security patches, and system improvements 

However, their potential drawbacks include the following:

  • Data Security Concerns: Cloud ERP providers manage security on their end, which means you must trust them with your sensitive data
  • Limited Customization: These platforms may be highly configurable, but they are not completely customizable 
  • Ongoing Subscription Costs: Subscription costs are predictable, but they can increase over time as you add features or users

Altogether, cloud ERP solutions are nimble and scalable, offer predictable costs, and can be tailored to your organization’s needs. However, it’s vital to choose a provider whose security standards align with the demands of your industry. 

Comparing On-Prem and Cloud ERP Solutions

Before you start your search for an enterprise resource planning platform, meet with key stakeholders and make a list of the challenges you hope to solve with such a solution. Next, set specific goals and identify must-have features that will help you overcome those business challenges; you’ll use this framework to guide your search. 

During your decision-making process, you should also consider the following aspects of cloud-based vs. on-prem ERP models:

Costs and Profits

On-prem enterprise resource planning platforms require a major upfront investment in both hardware and software. You’ll also need a significant amount of IT talent, which could mean scaling up your in-house IT team or contracting a third-party provider to assist. 

Once you implement the platform, your long-term costs should be predictable. However, you will incur significant costs anytime you need to upgrade the system or access additional storage capacity. That’s because you will have to purchase additional hardware and supporting infrastructure. 

On the other hand, cloud-based ERPs operate on a subscription-based model. The exact price will vary depending on a few factors, such as which developer you partner with, the number of users you plan to enroll, the computing resources you’ll need, and which features or add-ons you want to include. You can further customize your subscription to reduce costs and meet the needs of your business, but in general, most providers use some variation of a per-user, per-month pricing model. 

Scalability and Flexibility

On-prem ERP platforms offer limited flexibility. When investing in hardware and infrastructure, it’s essential to consider the future needs of your business. You don’t want to invest in “just enough” hardware to support the platform; otherwise, your infrastructure will lack any flexibility to adapt to changing business needs. Once you reach the limits of your existing infrastructure, you will have to invest in additional equipment and IT expertise. As such, those limitations may hinder your ability to implement new tools and features. 

Cloud ERP solutions offer flexibility and scalability. You can add users, access additional computing resources, and integrate new tools as the need arises. You can also adjust resources according to changing business demands with minimal infrastructure changes. 

The costs of scaling your cloud ERP are much lower as well. Typically, your monthly subscription fees will increase in proportion to the change you made. For instance, if you add 25 additional seats to your subscription, you will simply pay for those extra users. It’s that kind of predictability that makes it easy to invest in the latest tools and applications. 

Security and Compliance

On-prem ERP platforms give your business total control over its data security, which is critical for industries with stringent regulatory requirements. Cloud-based platforms, in contrast, rely on a shared responsibility security model. The provider will manage security measures for the cloud infrastructure and the platform software itself. Your business, in turn, assumes responsibility for its data and any cloud components that it controls. 

If you have compliance and regulatory concerns and are considering a cloud-based approach, make sure you choose a partner that follows such security measures. When your business and the provider are in alignment regarding security protocols, the risk of a breach or other incident is significantly reduced. 

Customization and Integration

Perhaps the most notable differences between cloud-based and on-prem ERPs are seen in their customization and integration capabilities. 

On-prem systems provide your business with the freedom to extensively customize them, allowing you to create bespoke workflows that meet your custom or complex requirements. The downside to this, however, is that all of that effort comes at a high cost. You will either need an in-house IT team or need to outsource to a third party.

Another potential drawback of heavy customization is that it may impede your ability to integrate other platforms with your ERP solution. Your IT support will likely have to create a custom application programming interface (API) to facilitate each integration. That is doable but rather expensive.

Cloud-based ERP programs, in comparison, are highly configurable, but they may have some limitations that on-prem solutions do not. Cloud ERPs make up for these by facilitating seamless integrations. ERP developers typically provide clients with access to an entire library of pre-built APIs, which are designed to enable integration with popular business tools. These, in turn, speed up the implementation process and can improve your ROI. Your team will have access to an entire suite of tools and resources via a centralized framework. 

Which Order Management Solution Is Best for Product-Centric Brands? 

The enterprise resource planning platform you choose will have a direct impact on profitability and the customer journey. Effective implementation helps your business optimize order management and enhance supply chain visibility.

Generally speaking, taking a cloud ERP approach offers better flexibility and scalability, both of which are invaluable for product-centric brands. Your business can use these capabilities to adapt to shifting consumer demand.

However, if your business is already using an on-prem ERP strategy, it doesn’t necessarily have to move to the cloud. Your organization has invested a significant amount of time, money, and resources into an on-premises solution. If that platform is still delivering value and meeting your needs, the focus should be on upgrading its capabilities through integrations.

For example, Cavallo offers robust order management and order intelligence tools that readily integrate with a variety of on-prem and cloud ERP platforms. The brand continues to support Microsoft Dynamics GP despite Microsoft’s announcement that it will end support for it in late 2029. 

Cavallo’s suite of tools also integrates with the following ERP platforms:

Whether your ERP of choice is powered with on-prem hardware or via the cloud, Cavallo can help you maximize ROI and profitability. 

How Order Intelligence Improves Margins and Maximize Profitability 

The Cavallo Order Intelligence platform represents the next evolution in smart order management and optimization. It allows businesses like yours to systematically identify and address margin leakage while optimizing critical workflows to improve profitability. 

The mission of Order Intelligence is simple: to power flawless orders that maximize profits. The platform uses advanced AI to mitigate profit erosion and support the long-term growth of your business.

Product-centric brands are already experiencing astounding results with Order Intelligence, including the following:

  • 2-10x increase in pre-tax profit
  • 50% improvement in per-employee revenue
  • 300 basis point gross margin increases

Whether you are rolling out a new ERP platform or want to upgrade the capabilities of your existing system, Cavallo has the solution. Explore Order Intelligence today.