Is SaaS ERP Right for Your Business?

Saas ERP. Ask a roomful of small business owners what that is and at least a few might guess it’s the latest armchair from Ikea.

So let’s start with the basics. SaaS stands for software as a service, which means you pay a subscription for your software rather than a large one-time fee for a shrink-wrapped box of CDs or a visit from the Oracle installation team. And ERP stands for enterprise resource planning. An ERP system combines all the various software tools you use to run your business -- accounting, contact management, expense tracking, purchasing, inventory management, etc. -- in one neat package.

You’re no doubt running some sort of ERP system in your business now. And you likely have considered an upgrade, since better ERP can mean better management of all your processes and a greater chance of succeeding when times are tough. But just as likely you’ve been unpleasantly surprised at the high upfront cost of a new ERP software installation.

Advantages of SaaS for Small Business

SaaS doesn’t require that you write a check with a lot of zeros (or take out a bank loan), only that you pay a regular -- usually monthly -- subscription fee. This is the advantage most immediately appealing to small businesses.

But this isn’t the only way SaaS can save your business money. Because the software is hosted by the service provider, you don’t need to buy new hardware to accommodate it and you don’t need an in-house IT staff to keep it up and running. Maintenance and updates are handled by your SaaS vendor. For these same reasons, SaaS also may save you a good deal of time in implementation and updating.

Another advantage is your subscription’s expiration date. If your company outgrows its SaaS system, you simply wait until your subscription is up and don’t renew. The break is clean, since no software has to be deleted from your computers.

Disadvantages of SaaS

For starters, software as a service isn’t necessarily an inexpensive solution. Because SaaS vendors typically charge a license or “seat fee” for each employee using the software, your subscription price will rise with your number of users.

Flexibility is also an issue for larger companies. Because the software is hosted remotely and likely used by many different customers, you can’t tweak the functions to suit your business. You can choose from a menu of services, but you can’t get under the hood with your toolbox and tune the software the way you want. And if there’s an update you’d really like to see, you’ll probably have to wait until other customers want the same update before the vendor will go to the trouble of adding it.

But these issues are usually of less concern to smaller businesses, which don’t have a lot of employees to buy subscriptions for and can more easily reshape their business practices to fit a new ERP system.

What Your SaaS ERP Should Include

Once you’ve shopped around for an SaaS vendor (and checked references from current customers), you need to decide what functions you want to include in your service package. Depending on the vendor you’ve selected, you should have a wide variety of options to choose from. Financial offerings will include payroll, accounting, purchasing, expenses, and more.

And there are many add-ons available beyond the finance basics. One of the most useful is customer management tools. These can be integrated with your accounting system to track payments, collect accounts payable, extend payment terms, and note unpaid accounts for tax purposes.

Top SaaS Vendors

So which should you go with? The leading SaaS vendor is Salesforce.com, which specializes in customer relationship management software, but also includes a development platform that gives customers access to a full range of business applications.

Another top SaaS vendor is NetSuite, which features financial planning, order fulfillment, inventory management, and customer management software. Other SaaS vendors of note are SuccessFactors for human resources and performance management software; Concur for travel and expense software; and RightNow for customer experience software.

Tom Stein has contributed to leading business and general interest publications including Wired Magazine, Business 2.0, Venture Capital Journal, and Tennis Magazine. Previously, he held staff-writer positions at the San Francisco Chronicle, Red Herring, and InformationWeek. He also was a senior editor at Success Magazine, where he covered some of the most unusual and utterly unique entrepreneurial companies in the world.