Cloud ERP vs On-Premise ERP: Which System Is Right for Your Business in 2025?

Choosing between cloud ERP and on-premise ERP depends on your business’s budget, scalability needs, and IT resources. Cloud ERP offers flexibility and lower upfront costs, while on-premise ERP gives full control but requires more infrastructure.

Cloud ERP vs on-premise ERP is a critical decision for modern businesses. This article breaks down the key differences in cost, scalability, security, and infrastructure so you can choose the right ERP system for your needs.

Identifying the solution best for you can depend on your growth goals, budget, and resources. Whether you're a small business owner looking to upgrade your systems or a large enterprise considering a shift in your IT infrastructure, understanding the nuances of these two options is important. This insight will help you make a sound decision that aligns with your organization's goals and resources.

What is on-premise software?

On-premise ERP (Enterprise Resource Planning) software is a business management system that is installed and runs locally on computers within a company's physical location.

Characteristics of on-premise ERP software

• Local installation - The software is installed and housed on the company's own servers and hardware.
• Full control - Companies have complete control over their ERP system and data.
• Limited scalability - As businesses grow, on-premise systems cannot easily accommodate increased demands.
• Upfront costs - There is typically a substantial initial investment in hardware, software licenses, and IT infrastructure.
• Higher security risk - outdated technology, delayed software updates, and increased vulnerabilities make on-premise systems more susceptible to cyberattacks.

On-premise infrastructure costs

Infrastructure costs are a big concern for businesses considering an on-premise solution because the upfront and ongoing management costs can scale quickly. Some of the infrastructure costs associated with upgrading on-premise software include:

• Purchasing new servers to accommodate the increase in hardware requirements.
• Installing, configuring, transferring data and settings, and applying patches for the new servers must be done before putting it into production.
• Licensing costs can go up or change to expensive pricing models (e.g., the change to per core vs. per CPU on an SQL server, the continual changing virtualization costs).

In addition, if a new system is set up on-premise, add installation fees, IT staff, software, maintenance, and cyber security costs to the above expenditures.

On-premise ERP security concerns

In 2023, 41% of small businesses fell victim to a cyberattack but data loss can also be caused by server failure or theft. Power outages, severe storms, and natural disasters can also result in server failure for on-premise ERP systems. As servers age, they are at a higher risk of failure due to end-of-life. Individual backup storage media such as tapes and CDs are vulnerable to file corruption, poor handling and storage, and loss. If the media is lost or damaged, the data stored on it is inaccessible.

When a single server fails, it “fails over” to a backup—or redundant—server. Without a backup server, connectivity to the ERP, POS, internet, and other server-dependent devices and systems will be lost. This could take your systems down for anywhere from hours to days. According to a study conducted by UpCity, 51% of small businesses said their website was down for 8 – 24 hours following an attack.

What happens when a business’ server fails?

When a server fails, a business cannot transact or perform any work. Lost time means lost money. Repeated downtime can result in lost customers.

If regular backups have not been performed, some business data will not be recovered, recent work performed will be lost, and websites will revert to an older, cached version, which may not be up to date. By regularly testing backups for the capability to restore successfully, businesses can mitigate the risk of losing data.

What is cloud computing?

Cloud computing is a way to store and access data and applications over the internet instead of using local computers or servers. This approach helps small and medium-sized businesses access their information securely from anywhere, without needing to buy and maintain their own hardware and software.

We are seeing more and more businesses embrace this technology and use it to their advantage. In fact, Gartner, Inc. says that by 2028, cloud computing will shift from being a technology disruptor to becoming a necessary component for attaining business competitiveness.

Characteristics of Cloud ERP

While on-premise ERP has been the traditional choice, you may be wondering whether cloud ERP could be a better option. Here is what you need to know:

• Simple deployment and management - Cloud-based software is easily deployable (little setup is required), simplifies IT management, has built-in security, is scalable and remotely accessible, and includes delivery and support services.
• Cost efficiency - Switching to a cloud ERP system can help organizations save resources and improve functionality by reducing unnecessary expenses. This is achieved by eliminating the need for on-premise servers, which lowers both IT and operational costs. For example, our customers often experience savings of up to 40% when they move from on-premise ERP to a cloud-based ERP.
• Eco-friendly computing—Cloud-based solutions are more “earth friendly” in that they reduce individual businesses' energy, paper, supply, and carbon emissions. Remote accessibility means more employees can work from home, reducing gas consumption and carbon emissions generated by daily commutes.
• Scalability - It is easier to expand a cloud-based software system to scale with a growing business. Whether adding more employees or another location, an organization can simply add more licenses and the cloud provider handles scaling out the resources needed.
• 24/7 accessibility - Cloud-based software gives you 24/7/365 secure access to your data from anywhere with an internet connection which means you can keep managing the business from your kids soccer game or even on vacation.
• Real-time insight - Your business data is continually updated in real-time, which improves business planning, quickens decision-making, and improves response to customers’ needs.

Cloud security

Cloud ERP provides additional layers of security focused on the technology, the physical location, and the expertise of the professionals maintaining your system.

• Firewalls- A cloud service provider’s firewall is much stronger than one a typical business can afford. IT professionals maintain it, ensuring it is configured correctly and that the firmware is always up to date.
• Penetration testing and vulnerability assessment - Cloud providers can afford to hire outside firms to proactively test the security of their systems so they can identify potential risks before they become an issue. The cost of this testing runs at $20–30K, usually beyond the budget of most SMBs.
• Layered data storage and redundancy - Data is saved to multiple storage areas (i.e., made redundant) across geographic locations to ensure against one of the servers going down. Should that happen, the compromised server “fails over” to one of the other servers in the network. In other words, a cloud provider has extra resources on hand to facilitate quick recovery from hardware failures. These benefits go beyond just the software system—uninterruptible power supplies and generators keep the power, internet access, and air conditioning systems going, too.
• Physical security - Operations and security staff work 24/7 to actively monitor security, control system access, and respond to support calls.
• Relationships - Cloud providers have relationships with software and security vendors that individual business owners cannot access. These relationships expand their expertise and the services and value they can offer.

While we covered a lot of ground in this article, there are many other differences worth mentioning. Here is a useful side-by-side comparison for each ERP deployment type:

The decision between cloud ERP vs on-premise ERP isn't a one-size-fits-all answer. It depends entirely on your unique business needs, budget, and long-term goals. On-premise solutions offer greater control but come with higher upfront costs and ongoing maintenance responsibilities. Cloud ERP provides flexibility, scalability, and enhanced security features, often at a lower initial investment. By carefully weighing the options, you can choose the ERP solution that best empowers your business to thrive.