Patrick Mulligan
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Today at 00:00
It’s Black Friday, and sales on all your channels are setting new records. You’ve spent the morning managing your Amazon and Meta ad accounts, and when you click over to Slack you see a series of frantic messages from your warehouse team: you’ve stocked out of your bestselling product because a one-off large wholesale order from several weeks ago wasn’t pushed to your inventory count.
Even worse, because your marketing manager didn’t know about the stock-out, an email promoting that very product was just sent to your 100,000 subscribers. You log into your business bank account to wire funds to your vendor in the hopes of quickly getting more inventory, but you don’t have enough available cash because several large untracked expenses hit your account all at once. Now you’re oversold, stressed beyond belief, and thinking there has to be a better way to run your business than manually updating spreadsheets and patching together disparate systems.
ERP (Enterprise Resource Planning) software prevents these hair-pulling situations by becoming the brains of your business. It’s a cloud-based system that ties together all these moving parts–inventory management and forecasting, accounting, warehouse management, shipping, customer service, human resources, and more—bringing you automation of many tasks and mission-critical data that’s always up to date.
What is an ERP system?
All ERPs are accounting systems at heart, and their primary goal is to track every single dollar that flows in or out of your business. Standard ERP features include:
- Revenue tracking from all channels
- Costs of Goods Sold (COGS) tied directly to that revenue
- Accounts Payable and Accounts Receivable Tracking
- Accounting Tied to Your Bank Accounts
- Inventory management, including forecasting and automated purchase order creation
- Advanced analytics and budgeting tools
There was a time when running an ERP meant having a local server in your facility. Today, all of the leading ERPs are cloud-based SaaS (software-as-a-service) solutions, and you access the ERP simply by logging into a website.
ERP vs. WMS vs. CRM
A WMS is a Warehouse Management System, a software tool for shipping orders to customers, receiving and tracking inventory, and organizing a warehouse for maximum pick-and-pack efficiency. While almost all ERPs have WMS functionality (and some actually started out as pure WMS solutions), an ERP’s built-in tools for running a warehouse are not as robust, and depending on your business needs you may want a specialized WMS that works with your ERP.
An ERP is also not the same as a CRM. Customer Relationship Management (CRM) software is an annotated database of all your customers that tracks order history, LTV, support interactions, and marketing touchpoints and cadence. As with WMSes, ERPs usually have some CRM functionality that can range from barebones to feature-rich, but many eCommerce companies will find it best to connect their ERP to a CRM such as Salesforce or Hubspot
Does Your Business Need an ERP?
All large eCommerce companies should run on accrual accounting, which means revenue and associated selling costs (shipping, fulfillment, etc.) are booked when an order is received, not when the funds enter or leave your bank account. To do this, you need to know your inventory value at any given moment, tracking every item as it comes in or goes out, at the true landed cost. This is a core function of an ERP.
ECommerce companies also need inventory planning, which means knowing the rate of sale of every SKU, the turnaround time for receiving new product, and order minimums and price breaks, combining all of that to figure out how much to order and when, and then sending a PO to a vendor and later paying that vendor. With 50 SKUs and a handful of vendors, this might be manageable on your own, but with 10,000 SKUs you’re going to want a software tool that can handle all of this for you.
No company can be successful without P&L and balance sheet management. You should know how much money you made (or lost) last week, month, and quarter, and how much cash you require for upcoming outflows like payroll or taxes or fixed costs like rent or software licenses. Because an ERP is always working off up-to-the-second numbers, the forecasting and budgeting tools will be far superior to your Excel spreadsheet.
Even if you aren’t running an actual ERP right now, you’re likely approximating one via several software tools. Maybe you’re tracking your inventory with Ordoro, shipping orders via ShipStation, following your financials in Xero, managing customer service in Zendesk, using Inventory Planner for forecasting, and tying all these systems together with Zapier, a little bit of Google Sheets, and lots of crossed fingers. An ERP would be a single solution to your current set of systems.
What Are the Downsides to ERPs?
ERPs can very expensive. At the enterprise level, you can spend over $50k just on the initial set-up and integration, and these systems can cost between $5k and $10k per month in ongoing licensing fees and add-ons, with contractual fee increases every year.
The implementation process will take months, and it can feel like you’re constantly discovering new things your expensive new software can’t do, or finding that you need to change longstanding procedures to accommodate the ERP. At the small business level, the implementation process will still take weeks, and the monthly fees can range from $500 to $2000.
Many ERPs started out as more specialized software products before growing into full-fledged ERP suites. As such, almost all ERPs are much stronger in some areas that others. It is very common for an eCommerce owner to find that their shiny new ERP can’t do a simple but mission-critical, thing that an older, more limited software system could. At the point you will find yourself spending more money to integrate the ERP with another piece of software. And then pulling out your hair when an update to one or the other breaks your integration.
You want your ERP to be the single source of truth for your business
You will also need to train yourself and your team to work within the ERP as much as possible. You want your ERP to be the single source of truth for your business, really everything has to be either done within the ERP or pushed to the ERP via an API integration. There are many wrinkles to eCommerce accounting, such as the timing of deposits by payment processors, and your preferred method for dealing with this issue might simply not work with an ERP. At that point, you’ll have to decide if you want to pile a new workaround on top of your workaround to get the data into your ERP, or if you want to change your procedures to work in the ERP’s preferred method.
How to Get Started with an ERP
Before thinking about an ERP, you should first map out how your business is run right now.
- What are the data silos, and how does (or doesn’t) information move from one place to another?
- How many hours of productivity are wasted making the ad hoc system work?
- Where do things most often go wrong?
- Is your current way of doing things preventing you from growing?
All ERP companies will be happy to demo their software for you and promise that all your logistics and accounting headaches will go away once you sign up for a yearlong contract. Rather than reaching out to ERP providers themselves, though, you can instead start with an ERP consultant who can do a deep dive on your business and then suggest which ERP is right for you.
A drawback of this approach, though, is many ERP consultants have their own preferred systems, and don’t actually try to find the software that’s perfect for your business. So be wary of consultants who aren’t deeply familiar with several ERPs, including new entrants.
The eCommerceFuel ERP Rankings
eCommerceFuel is a community of verified 7- and 8-figure eCommerce owners. Our members have tried every ERP out there, and below you can find our rankings based on thousands of pieces of feedback from owners who’ve seen it all when it comes to ERPs. We’ve broken the leading ERPs down into three tiers, and have selected the ECF winner in each category.
If you want to see the ERP reviews, and reviews for every type of eCommerce software apply to become a member today
Enterprise ERPs 💰💰💰
ERPs at this level are designed for large (over $5 million in annual revenue) and growing companies. These systems are incredibly powerful, but to get the most out of them you’ll need to extensively customize them with your own code. You’re paying more but you’re also getting a lot more stability—you’re unlikely to see these ERPs disappear or get swallowed up by a competitor, and you’ll have an easier time finding third-party software and vendors that play nicely with these ERPs.
If you’re expanding your team, you are more likely to find new hires who are already familiar with NetSuite or SAP than a new-to-market ERP. And if you’re looking to eventually sell your company, potential acquirers may have more faith in your procedures and your analytics if you’re using an enterprise-grade ERP.
On the ECF forums, there have been lively discussions about upgrading the process of upgrading from a mid-range ERP to an enterprise solution, a great, in-the-weeds writeup on how to best approach a serious ERP implementation, and cautionary tales about how wrong things can go when you jump into an enterprise ERP before you’re ready.
The Winner: NetSuite 🏆
NetSuite truly is best-in-class when it comes to ERPs for eCommerce. The price is high, the implementation process is long, but ECF members who have invest the time and money have found NetSuite to be well worth it.
Mid-Range ERPs 💰💰
Just below the enterprise level, there are a wide range of ERPs to choose from. These systems are much younger than the SAPs and the NetSuites, which has positives (they’re built from the ground up to work with today’s platforms such as Amazon and Shopify) and negatives (third-party support can be lacking).
At this level, it’s critical to evaluate the robustness of the ERP’s integrations with other platforms such as Shopify, Amazon, etc. A well-maintained API connection is best of all. Be wary of ERPs that claim to work with another service if that connection relies on manually uploading CSV files.
In the ECF forums, there are long threads about what happens when your mid-range ERP is acquired by a larger company, deep dives into how to get the most of this open source solution, and a thread by our resident Zoho guru that extends to over 500 messages on the ins-and-outs of the small but mighty ERP.
The Winner: Zoho 🏆
This suite includes a very powerful CRM tool, and offers near-NetSuite levels of functionality at a much more reasonable price.
The Near-ERPs 💰
Many WMS and inventory-tracking systems have now added enough functionality that they can be seen as mini-ERP systems. Because the addressable market for ERP systems is larger than that of pure WMS, and because many customers of these tools eventually need a full-fledged ERP, we will continue to see WMSes grow into ERPs.
None of these tools offer built-in accounting, but they all integrate with QuickBooks and Xero. Given that the built-in accounting in many mid-range ERPs is not as robust as QB or Xero, some companies may find that it makes more sense to use a solution that plays nicely with the accounting software they’re already using.
ECF counts among its members the founder of Shiphero, and there are extensive discussions on its powerful warehouse management features. There are also some words of warning about Cin7, and lots of great information on how to get the most out of Skubana.
The Winner: Finale 🏆
One of our true ECF experts has done a deep-dive on this inventory management tool, and he swears by its features and its support.
Closing Thoughts
An ERP will likely be the largest software line item in your P&L. While the upside to a well-integrated ERP is tremendous, all the major systems have drawbacks.
For informative discussions of ERPs and other issues that eCommerce owners face every day, join the over 1000 members of ECF who are always happy to share their experiences, give you an honest appraisal of a service or software, and commiserate when the ShipStation API breaks your Xero integration. Apply here!
Post by Patrick Mulligan
Patrick Mulligan is the cofounder of Pop Chart, a DTC wall décor company, which he has been running since 2010. Prior to Pop Chart, he worked as a book editor at Penguin for nearly a decade.