When evaluating Cloud Based ERP vs on-premise ERP, businesses must consider several key metrics to determine what will work best for them.
Understand with us the difference between cloud ERP and on prem ERP based on several critical factors along with a quick guide on choosing the right one.
Cloud Based ERP Vs On Premise
Before delving into the comparison metrics, let’s understand what they mean:
Cloud Based ERP is a web-based enterprise resource planning system hosted on the vendor’s servers and accessed via the internet.
On Premise ERP is a self-hosted enterprise resource planning system installed on a company’s own servers and infrastructure.
Total Cost of Ownership (TCO)
Cloud ERPs have lower upfront costs as it follows a subscription-based (SaaS) model. This eliminates the need for maintaining and buying expensive hardware and infrastructure.
The costs include licensing, implementation, and ongoing usage fees. However, these costs can add up over time.
On-Premise ERP have higher initial investment. This is because the business using it will have to spend on hardware, software, and IT infrastructure setup.
Ongoing costs include maintenance, upgrades, and IT staff salaries. However, the higher initial investment may be more cost-effective in the long run for large enterprises with dedicated IT teams and infrastructure.
Winner: Cloud ERP, for lower upfront and maintenance costs; On-Premise ERP for long-term cost savings, if managed efficiently
Data Security & Control
The security of cloud ERP depends on the vendor. Leading ERP providers use advanced encryption, firewalls, and compliance protocols for this purpose.
However, when using Cloud Based ERPs, businesses relinquish direct control over their data.
In case of on-premise ERPs, businesses have full data control.
This allows them to set their own security policies and comply with industry-specific data protection standards.
Winner: On-Premise ERP – better for organizations needing complete control over sensitive data
Availability & Downtime
Cloud ERP has a significant advantage over On Premise due to high availability (99.9% uptime) with automatic failover and redundancy.
However, this also depends to a large extent on internet connectivity and vendor reliability.
On-Premise ERP’s availability is subject to internal infrastructure.
It may become vulnerable to hardware failures or lack of redundancy unless there’s a backup system.
Winner: Cloud ERP – generally has better uptime and redundancy
Implementation Time
Cloud ERP has a comparatively faster deployment time since it does not require hardware installation.
Most implementations take weeks to a few months.
On-premise ERP on the other hand takes longer to implement due to hardware setup, customization, and IT configuration.
Deployment can also take several months to a year depending on the organization size and data.
Winner: Cloud ERP – for quick and easy deployment
Scalability
Cloud ERP is highly scalable, allowing businesses to add users, storage, and features on demand. Therefore, it’s ideal for growing companies.
On-Premise ERP has Limited scalability. Adding new resources requires hardware upgrades and additional IT support.
Winner: Cloud ERP (easier and cost-effective scalability).
Customization & Flexibility
Cloud ERP offers limited customization as most vendors offer pre-configured solutions.
Although, some platforms allow extensions via APIs but have restrictions.
On-Premise ERP is highly customizable since businesses own the software and infrastructure.
This makes it easier to tailor to unique business needs.
Winner: On-Premise ERP – better for businesses needing deep customization
Integration with Other Systems
Cloud ERP offers API-based integrations with modern third-party applications (CRM, eCommerce, analytics, etc.).
However, deep integrations may require vendor support.
On-Premise ERP can integrate with legacy systems and other internal applications, but may require custom development and IT effort.
Winner: Cloud ERP -easier integration with modern applications
Maintenance and Support
The vendor handles all maintenance, updates, and support for Cloud Based ERPs, reducing the need for internal IT teams.
On-Premise ERP requires dedicated IT staff for maintenance, troubleshooting, and software updates, increasing operational costs.
Winner: Cloud ERP – less IT burden
User Access & Mobility
Cloud ERP is accessible from anywhere via web browsers and mobile apps. This makes it ideal for remote work.
On-Premise ERP is limited to office premises unless additional VPN or remote access solutions are implemented, which can again increase the cost.
Winner: Cloud ERP -superior mobility and remote access
Compliance & Regulatory Requirements
The compliance of a Cloud ERP system depends on vendor certifications. These may not be suitable for industries with strict data rules.
It’s easier to meet regulatory requirements with on-premise ERP: as businesses have full control over data storage and handling.
Winner: On-Premise ERP – better for industries with strict regulations
Performance & Speed
Cloud ERP: Performance depends on internet speed and vendor infrastructure. Slower connections may impact real-time data processing.
On-Premise ERP: Runs on dedicated hardware, ensuring consistent high performance without internet dependency.
Winner: On-Premise ERP (better speed and performance in some cases).
IT Resources & Support
Cloud ERPs require minimal IT involvement since the vendor manages servers, backups, and updates.
On-Premise ERPs on the other hand, need dedicated IT staff to handle infrastructure, troubleshooting, and software updates.
Winner: Cloud ERP – less IT overhead
Vendor Dependency & Data Portability
Cloud ERPs have a higher vendor dependency, which can make migration to another platform difficult and costly.
In case of on-Premise ERPs, you have more control over data. This makes it easier to migrate or switch vendors.
Winner: On-Premise ERP – for long-term flexibility
Disaster Recovery & Business Continuity
Most Cloud based ERP systems have automated backups and multi-location redundancy. These can help with faster disaster recovery.
Businesses must set up and manage their own backup and disaster recovery plans, increasing complexity of using on-Premise ERPs.
Winner: Cloud ERP – for better built-in disaster recovery
User Experience & Interface
Cloud ERP is modern, has a user-friendly UI and provides frequent updates and AI-driven insights.
The user interface may feel outdated unless customized or upgraded for On-Premise ERP.
Winner: Cloud ERP – better interface and interface improvements
Updates
One of the best features of Cloud ERP is its automatic updates managed by the vendor, ensuring the system is always up-to-date.
On-Premise ERP on the other hand requires manual updates. Now these can be costly and time-consuming plus require expertise.
Winner: Cloud ERP – for seamless updates with no downtime
Quick Guide to Choosing Between Cloud-Based and On-Premise ERP
If you’re wondering which is better, cloud or on-premise, here’s a quick guide that’ll help:
Choose Cloud-Based ERP if:
- You don’t have extensive in-house IT staff for ongoing maintenance and updates
- You prefer predictable monthly subscriptions over large upfront investments
- You need to implement quickly without hardware procurement delays
- Your team needs secure access from multiple locations or devices
- Your business anticipates significant growth or seasonal fluctuations
- You want the latest features without managing upgrade projects
- You prefer to minimize hardware costs and ongoing maintenance
- You need consistent access across different geographic locations
Choose On-Premise ERP if:
- You must keep sensitive data within specific geographic boundaries
- You need extensive modifications to match unique business processes
- Your industry requires specific data handling protocols
- You already have significant hardware investments and IT expertise
- Your operations need to function without internet connectivity
- Your financial analysis shows better ROI with perpetual licensing
- You have critical older systems that require deep integration
- You want full authority over all aspects of system management and security
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Frequently Asked Questions
1. What is the main difference between Cloud ERP and On-Premise ERP?
Cloud ERP is hosted online by a vendor and accessed via the internet, while On-Premise ERP is installed on a company’s own servers and managed in-house.
2. Which ERP is more cost-effective in the long run?
Cloud ERP has lower upfront costs but ongoing subscription fees, while On-Premise ERP requires a high initial investment but may be more cost-effective over time.
3. Which ERP is better for customization?
On-Premise ERP offers more customization since businesses have full control over the software, while Cloud ERP has limitations due to vendor restrictions.
4. Which ERP is better for disaster recovery?
Cloud ERP has built-in disaster recovery with automatic backups, while On-Premise ERP requires businesses to set up and maintain their own backup systems.
5. Is Cloud ERP suitable for large enterprises?
Yes, Cloud ERP is scalable and used by large enterprises, but industries with strict security and compliance needs may prefer On-Premise ERP.
