In 2025, the choice between cloud ERP and on-premise ERP will be the only two viable options for businesses to implement an enterprise resource planning (ERP) system. With cloud computing becoming more popular, your choice between cloud vs on premise is a big one that affects your costs, customization, security and more.
This article will explore the major differences, pros and cons between cloud and on-premise ERP in 2025 to assist businesses in deciding which deployment model makes the most sense. Comparisons of factors demanding data security, upfront costs, scalability, and vendor support are useful to organize an informational guide.
Defining Cloud ERP and On-Premise ERP
Cloud ERP refers to an ERP solution that is hosted on the vendor’s servers and accessed via the Internet. Users connect to the ERP system through a web browser instead of having software installed locally. The cloud vendor takes care of hardware maintenance, software upgrades and security patching.
On the other hand, on-premise ERP requires installing software from an ERP development company and databases on in-house servers and hardware infrastructure. The organization’s IT team is responsible for maintaining all servers, backups, updates and security measures related to the on-premise system.
Upfront and Ongoing Costs
The first difference between cloud ERP and on-premise ERP is that you have to invest upfront. Cloud ERP has a lower barrier to entry than its on-premise counterparts.
In fact, the average cost to implement cloud ERP is $100,000, and upfront costs of on−premise ERP can exceed $750,000 in year one. The lower startup costs make cloud ERP accessible for more small and medium businesses.
However, cloud ERP entails ongoing subscription fees, whereas ERP on premise vs cloud deployments primarily incur maintenance costs after the initial investment. On the other hand, apart from IT staff and infrastructure maintenance costs, on-premise ERP does not incur a recurring fee.
Over 5-10 years, the total cost of ownership can balance out between cloud and on-premise options. Businesses should consider both short-term budgets and long-term projections when evaluating ERP costs.
Scalability and Flexibility
A clear advantage of cloud-based ERP vs traditional ERP is scalability. With cloud ERP, adding or reducing users is easily achieved through the vendor control panel. Cloud servers can be scaled to accommodate growth in data storage needs and application usage.
Conversely, on premise ERP vs cloud ERP solutions rely on fixed hardware capacity. Significant business expansion, like adding new locations,s may require purchasing additional servers and licenses. There is also the hassle of integrating multiple ERP systems if adopting a multi-site on-premise model. As a result, companies prioritizing flexibility often opt for ERP cloud vs on premise.
Access and Availability
Cloud ERP systems promise 99.9% uptime availability as part of most vendor service-level agreements (SLAs). Leveraging cloud infrastructure spread across multiple data centers provides redundancy against outages. This level of availability surpasses what most small and mid-sized businesses can achieve with on-premise servers.
Cloud ERP also provides employees with access anywhere via mobile devices and personal computers. Suppliers and partners can be granted selective access to relevant applications without needing to connect to the office network. The same level of mobile-friendly and external access is difficult and costly to enable with on-premise ERP dependent on internal hardware.
However, cloud systems risk periodic internet outages affecting performance. Nevertheless, modern cloud ERP platforms are designed to be offline capable and to synchronize to avoid productivity disruption.
Customization
Historically, cloud ERP systems were considered less customizable than on-premise ERP systems, which were more customizable. However, with the speed of cloud innovation, customization gaps have been significantly smushed. GUI-based personalization of low-code cloud ERP platforms, cloud APIs, and integration provides what is needed to extend functionality.
Cloud ERP customization is still not as endless as the open-source modification potential with on-premise software. However, cloud vendors offer configuration services that allow tuning ERP to address more specific industries and requirements. The nature of business customization of on-premise systems comes with the trade-off of risky upgrades and reliance on internal IT skills.
88% of cloud ERP users surveyed confirm that their systems meet all the customization needs for managing current business operations efficiently. On-premise often necessitates more upkeep to sustain customized functions through version migration projects.
Data Security
Data security remains a top concern for organizations when considering cloud vs on premise ERP options. There is still a common perspective that on-premise provides stronger protection and governance compared to the cloud.
However, modern cloud ERP vendors invest heavily in attaining the highest security certifications and patrol their infrastructure vigilantly against threats. Small businesses rarely have the expertise or budget to match cloud provider security protocols with on-premise implementations.
Moreover, well-known cloud vendors offer activity audit logs, sophisticated identity and access controls, and sophisticated encryption, which is so superior to on-premise ERP that most companies will be unable to find a better space than in the cloud. As cyberattacks become more and more frequent and powerful, cloud platforms are being given greater resources to be more resilient and be able to respond more quickly.
On premise vs cloud ERP breach costs are higher for on-premise ERP environments. This indicates that cloud ERP can offer security on par with, or even superior to, on-premise ERP. In general, cloud ERP platforms are on par with data protection and compliance with on-premise installations.
Vendor Support and Updates
A long-standing benefit of cloud-based solutions is offloading responsibility for maintenance, troubleshooting and upgrades to the vendor. Cloud ERP providers manage the entire technology stack from data centers to applications, freeing up internal IT teams.
Cloud ERP vendors also pledge regular software updates and feature improvements as part of subscription contracts. This allows organizations to take advantage of innovation and capabilities like artificial intelligence, advanced analytics and process automation.
In contrast, legacy on-premise ERP systems often lag behind many software generations, which can impact compatibility, performance and access to newer functions. IT staff are responsible for on-premise upgrades, as they must validate new releases, retest integrations, and manage change.
Cloud ERP vs On Premise: Making the Right Choice
On-premise ERP solutions made more sense historically when cloud capabilities were still maturing. But in 2025, leading cloud ERP providers can match or exceed on-premise enterprise systems across cost, security, customization and more.
However, cloud vs on premise ERP considerations go beyond technical capabilities. The optimal deployment model aligns with business priorities like growth plans, budget constraints, appetite for innovation and IT strategic vision.
Here is a summary of factors that should drive organizations towards cloud or on-premise ERP in their digital transformation:
Consider Cloud ERP for:
- Rapid business scaling or seasonal peaks
- Need for mobility and external partner access
- Limited internal IT skills and resources
- Cost constraints but require advanced functions
- Frequent changes in processes and applications
- Global operations and multi-site rollouts
Consider On-Premise ERP for:
- Highly proprietary processes requiring customization
- Applications with integration to legacy systems
- Stringent data security and residency stipulations
- Abundant IT skills and infrastructure capacity
- Industries with cloud solution gaps (e.g., manufacturing)
Blended model emerging
As cloud ERP platforms mature and on-premise compatibility improves, more companies are adopting a ‘best-of-breed’ approach in 2025. This involves deploying a mix of cloud and on-premise ERP components catered to each business function.
For example, organizations may run cloud solutions for customer relationship management and expenses while retaining on-premise manufacturing and financial modules. Specialized applications like payroll, warehouse management and business intelligence can also be decoupled from the core ERP strategy.
Conclusion
The cloud vs on premise ERP debate in 2025 strongly favors cloud adoption, thanks to its lower entry costs, faster implementation, and enhanced scalability. Cloud ERP provides faster implementations, lower entry costs and inherent scalability that legacy on-premise systems struggle to match.
However, on-premise ERP still holds an edge for specific customization, security and industry-focused capability needs. Organizations taking a selective approach can reap the benefits of both deployment models in a blended ERP environment.
There is no universal ‘best’ ERP delivery model for all businesses. Leadership teams need to weigh the pros, cons, and cost considerations covered in this article against strategic objectives and IT capabilities. That insightful analysis will determine whether cloud, on-premise or hybrid ERP is the right choice to drive digital transformation and long-term growth.
