Cost Estimates and Selection Checklists
ERP total cost of ownership: a 5-year worked example in Canadian dollars
How to build a 3–5-year ERP total cost of ownership for a Canadian SMB, with every cost line, renewal uplift, FX, internal time and a contingency worked through.
Total cost of ownership (TCO) is the sum of everything you will spend to buy, implement, run and eventually leave an ERP over the period you compare, usually three or five years. For a fair comparison, build it year by year in Canadian dollars, include one-time and recurring lines, apply renewal increases and exchange-rate assumptions, add your own staff time and a contingency, and show sales tax that you cannot recover separately. This guide works through a complete five-year example you can copy.
It is part of the ERP selection checklist. Every number is illustrative; replace it with your quotes.
The cost lines
One-time (mostly year 0 or year 1):
- partner implementation (design, configuration, testing support);
- data migration and cleaning;
- integrations (payroll, banks, e-commerce, EDI, shipping);
- custom reports and forms;
- training and documentation;
- internal staff time and back-fill;
- hardware or devices (scanners, label printers, tablets);
- contingency for overruns.
Recurring (every year):
- subscription for users and modules, with renewal uplift;
- support plan and partner retainer for small changes;
- connector or add-on subscriptions;
- extra environments and storage;
- refresher training and new-hire onboarding;
- internal system administration;
- non-recoverable provincial sales tax, if any.
End of life: data export, archive storage for records you must keep, and parallel licences during a future switch. The contract exit guide explains why this belongs in the model.
Worked example: 20-user distributor in Ontario (illustrative)
Assumptions: 12 full users at $160 per user per month and 8 light users at $45 per user per month, billed in CAD; renewal uplift capped at 4% a year from year 3; implementation by a partner on a fixed fee with time-and-materials integrations.
Subscription per year (year 1): (12 × $160 + 8 × $45) × 12 = ($1,920 + $360) × 12 = $27,360. Add-ons (shipping connector and advanced reporting): $4,800 a year. Support plan: $3,000 a year.
| Line (illustrative, CAD) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total |
|---|---|---|---|---|---|---|
| Users and modules | 27,360 | 27,360 | 28,454 | 29,593 | 30,776 | 143,543 |
| Add-ons and connectors | 4,800 | 4,800 | 4,992 | 5,192 | 5,399 | 25,183 |
| Support plan | 3,000 | 3,000 | 3,120 | 3,245 | 3,375 | 15,740 |
| Implementation (fixed fee) | 48,000 | – | – | – | – | 48,000 |
| Integrations (T&M estimate) | 14,000 | – | – | – | – | 14,000 |
| Data migration and cleaning help | 9,000 | – | – | – | – | 9,000 |
| Training (initial, then refreshers) | 5,000 | 1,500 | 1,500 | 1,500 | 1,500 | 11,000 |
| Internal staff time | 30,000 | 4,000 | 4,000 | 4,000 | 4,000 | 46,000 |
| Partner retainer for changes | – | 4,000 | 4,000 | 4,000 | 4,000 | 16,000 |
| Contingency (15% of one-time lines) | 15,900 | – | – | – | – | 15,900 |
| Total | 157,060 | 44,660 | 46,066 | 47,530 | 49,050 | 344,366 |
How the figures are built: the 4% uplift from year 3 means $27,360 × 1.04 = $28,454, then × 1.04 = $29,593 and × 1.04 = $30,776. Internal staff time in year 1 is 750 hours at a loaded $40 an hour. Contingency is 15% of the one-time lines: ($48,000 + $14,000 + $9,000 + $5,000 + $30,000) × 15% = $106,000 × 15% = $15,900.
Over five years, the software (users, add-ons and support) is about $184,500, or 54% of the total. Everything else is project, people and contingency. That is why comparing subscription prices alone misleads.
Turning the table into a comparison
- Same period, same lines for each offer. A missing line in one quote is not a saving; ask the vendor for the figure or estimate it yourself.
- Convert USD quotes at a realistic rate plus a buffer; see USD contracts and FX risk.
- Show recoverable tax separately. GST/HST and QST you can claim back as ITCs and ITRs do not belong in TCO for a registered business; non-recoverable PST in BC, Saskatchewan or Manitoba does. See GST/HST and QST on ERP SaaS.
- Compare cash and cost per year, not just the total: year 1 is heavy, which matters for cash flow and financing.
- Optional: discount future years. A finance team may want a present-value figure; at an illustrative 6% discount rate, a dollar in year 5 is worth about 75 cents today. For most SMB decisions the undiscounted total plus a sensitivity check is enough.
Sensitivity: what moves the total
| Change (illustrative) | Effect on five-year total |
|---|---|
| Implementation overruns 30% instead of 15% contingency | +$15,900 |
| Renewal uplift 8% instead of 4% from year 3 | roughly +$9,100 |
| Five more full users from year 3 | roughly +$31,200 |
| Billing in USD with a 5% adverse move | roughly +5% of the subscription lines |
Use the TCO estimator for a quick range and the renewal and FX buffer calculator for the uplift and currency lines. Then test whether the savings justify the cost with the payback worked example.
FAQ
Should TCO include my own staff time?
Yes. It is real cost, even if no one invoices it, and it is often the line that pushes a project over budget.
Three years or five?
Use the contract length and expected life. A five-year view spreads implementation more fairly; a three-year view is more conservative if you might outgrow the system.
What contingency is reasonable?
There is no standard figure. Many buyers hold 10% to 25% of one-time costs depending on complexity and data quality; time-and-materials projects warrant the higher end.
Do I include sales tax?
Include only tax you cannot recover. For most GST/HST registrants that means provincial sales tax where it applies.
Sources
- Canada Revenue Agency — input tax credits and recoverable taxes
- Bank of Canada — exchange rates for USD-priced quotes
- Business Development Bank of Canada (BDC) — guidance on financing technology projects
