Cloud ERP vs On Premise ERP: Similarities and Differences

Cloud-based ERP and on-premise ERP are two contrasting approaches to deploying enterprise software for small and medium-sized businesses (SMBs). Choosing between Cloud ERP vs On Premise ERP is a critical decision that affects cost, scalability, security, and future growth. In today’s Softengine comparison guide, we explore definitions and key differences: Cloud ERP systems are hosted on the vendor’s servers and accessed via the Internet, whereas on-premise ERP software is installed on local servers within the company’s facilities. Cloud ERP (often offered as Software-as-a-Service or SaaS) typically comes with lower upfront costs, easier deployment, and remote access. Conversely, on-premise ERP provides full control over hardware and data but requires significant initial investment and maintenance. 

Understanding these options helps SMBs align their ERP choice with growth goals, budget, and IT capabilities.

What is Cloud ERP?

A Cloud ERP system is an enterprise resource planning platform hosted on a remote data center and managed by a third-party vendor. In this model, businesses access the ERP software through a web browser and pay a subscription rather than purchasing servers or installing software on-site. Cloud ERP solutions are delivered as a complete service: the vendor handles all hosting, maintenance, security updates, and infrastructure. This means little to no upfront investment in hardware, and businesses benefit from automatic upgrades and 24/7 support.

Importantly, Cloud ERP offers high flexibility and scalability – you can quickly add users or features as your business grows without buying new servers. For example, Softengine offers that moving to SAP Business One Cloud (hosted on a secure AWS cloud) allows SMBs to run their core functions anywhere, delivering real-time data from finance to inventory and freeing them from internal IT maintenance.

What is On-Premise ERP?

On-Premise ERP refers to ERP software installed on a company’s own servers and maintained by its internal IT staff. With this approach, the business owns the hardware and software licenses outright. This model offers complete control: companies can customize the system extensively and enforce their own security policies, since all data resides on-site. However, those benefits come with trade-offs.

On-premise systems involve substantial upfront costs – purchasing servers, network equipment, and software licenses – and require dedicated IT personnel for setup, updates, and backups. They also scale less easily: as the business expands, adding users or capacity often means buying and configuring more hardware. In summary, on-premise ERP gives SMBs full control and customization, but at the expense of higher initial investment and ongoing maintenance responsibilities.

Cost: Cloud ERP vs On-Premise ERP

Cost structure is one of the most striking differences between Cloud and on-premise ERP. On-Premise ERP typically requires a large capital expenditure upfront: costs for servers, data center space, software licenses, and the IT team to install and manage everything. SMBs often underestimate these costs; in addition to hardware, they may need to upgrade existing infrastructure and even hire or train staff for deployment and ongoing support. Maintenance and upgrade expenses also add up, since upgrades can involve hardware refreshes and labor.

In contrast, Cloud ERP shifts most costs to an operating expense model. Businesses pay a predictable subscription fee (often monthly or annually) that covers software, hosting, and support. This eliminates the need to buy servers or invest in private data centers. For example, Softengine reports that customers moving from on-premise SAP Business One to the cloud see cost savings of up to 40%, thanks to lower IT infrastructure and maintenance costs. Cloud ERP vendors often offer unlimited user models or pay-as-you-go pricing, making it easier for SMBs to manage budgets and only pay for what they use.

However, it’s worth noting that Cloud ERP is an ongoing service: over many years, subscription fees can accumulate and may even exceed one-time on-premise costs for businesses with very stable or low growth. Despite this, the consensus is that SMBs benefit from the lower barrier to entry. As one analysis notes, moving to the cloud “brings down the cost of operation substantially,” since the vendor covers hardware and IT overhead. In turn, for businesses concerned about cash flow and upfront expenses, Cloud ERP often provides a more affordable path than the heavy initial investment of on-premise software.

Scalability and Flexibility

Scalability is a major advantage of cloud ERP over on-premise. Because Cloud ERP runs on virtualized servers in data centers, resources (such as computing power, storage, and users) can be scaled up or down in minutes as needed. SMBs can add new users, branches, or modules without installing new hardware. In fact, one study explains that on-premise systems are “fairly static” and force companies to “purchase additional equipment” as demands grow, whereas cloud ERP allows businesses to scale quickly without new hardware or software licenses. This built-in elasticity is especially important for growing companies or those with seasonal fluctuations: a retailer, for instance, can ramp up capacity during holidays and dial back off-season.

On-premise ERP, by contrast, has limited scalability. Expanding capacity often means buying and installing new servers or storage devices – a process that takes time and money. On-premise systems cannot easily accommodate increased demands and thus struggle to keep pace with growth. They are also physically constrained by the company’s infrastructure. For example, if a manufacturer opens a new plant or doubles its staff, its on-premise ERP may require substantial hardware upgrades to support the added transactions and users.

Beyond just technical scaling, Cloud ERP offers flexibility in deployment and usage patterns. Many cloud solutions provide flexible subscription models and can be deployed globally without local infrastructure. SAP Business One Cloud (on AWS) can add or remove users on-demand to match business changes. Similarly, Acumatica – a cloud-native ERP – is built with flexible architecture that supports business growth seamlessly. In short, cloud ERP’s scalability and adaptability make it well-suited for SMBs with growth ambitions or unpredictable workloads, whereas on-premise ERP may become a bottleneck unless substantial reinvestment is made.

Deployment and Implementation

The deployment process for Cloud versus on-premise ERP also differs significantly. Cloud ERP is generally much faster to implement. Because there’s no need to procure hardware or perform complex installations on-site, a cloud solution can often go live in a few months. The vendor handles server provisioning, software setup, and initial configuration, allowing SMBs to start using core features quickly. A cloud ERP can be ready in as little as a few months versus six months or longer for on-premise. This more rapid deployment is a boon for businesses that need immediate results, such as a distributor wanting faster inventory management.

On-premise ERP deployment, in contrast, is more involved. It requires purchasing and setting up servers, configuring networking and security, installing the ERP software, and integrating it with existing systems. Every step demands planning and on-site work by IT staff or consultants. This leads to longer implementation timelines (often six months to a year) and more complexity. Moreover, any delays in hardware delivery or technical issues can further extend the project timeline.

For deployment, a simple summary is: Cloud ERP offers “simple deployment” and “little setup is required,” simplifying IT management. It comes as a service that’s ready to use. On-premise ERP, meanwhile, involves “local installation” on servers you own and manage, which is time-consuming and resource-intensive. SMBs with limited IT staff often find the cloud path much more manageable due to these contrasts in deployment complexity.

Security and Compliance

Security is often a key concern when comparing Cloud ERP vs On Premise ERP. On-Premise ERP keeps all data and systems under the company’s own roof, which some businesses view as offering more direct control. With on-premise, your IT team can configure firewalls, encryption, and access policies exactly how you want, and you can meet strict data residency or compliance rules by keeping everything in-house. However, this also means all security responsibility falls on the company: SMBs must invest in competent IT security professionals, maintain up-to-date antivirus and intrusion detection, and ensure physical security of the servers. If a threat emerges, the business must be ready to respond on its own. Aging on-premise servers and outdated tech can make on-premise ERP more vulnerable if not properly managed.

Cloud ERP, on the other hand, uses the provider’s security infrastructure and expertise. Leading cloud ERP vendors partner with major cloud platforms like AWS or Azure, which have advanced security measures. For instance, Softengine emphasizes that hosting SAP Business One on AWS gives “world-class” protection: AWS safeguards data with robust encryption, regular backups, and extreme hardware reliability (20× better than commodity disks). Cloud providers routinely employ specialized cybersecurity teams to monitor systems, perform penetration testing, and apply patches promptly. Coud ERP includes “additional layers of security” – such as strong firewalls, scheduled vulnerability assessments, and geographically distributed redundant storage.

Cloud ERP also often offers better disaster recovery. Data is stored redundantly across multiple data centers, so hardware failures or localized disasters do not lead to data loss. Downtime is minimized by failover to backup servers. As one source highlights, cloud hosting provides “complete visibility & control” with “flawless security” because everything is maintained by experts.

That said, cloud ERP does mean trusting a third party with your data. Some companies worry about loss of direct control or regulatory implications. If you have highly sensitive data or unique compliance requirements, on-premise lets you tailor security. 

In practice, modern Cloud ERPs meet most enterprise security standards (ISO, GDPR, SOC, etc.) and often surpass what an SMB could afford internally. As Acumatica explains, cloud solutions provide “enterprise-level security” and continuous monitoring at the platform level. For example, SMBs on Acumatica or SAP B1 Cloud gain the benefit of constant platform updates and vendor commitment to security. In summary, cloud ERP can actually deliver stronger, more up-to-date security for many SMBs, though companies focused on ultimate control may still choose on-premise.

Maintenance and Support

Maintenance is another area where Cloud ERP and on-premise ERP differ. Cloud ERP greatly reduces the maintenance burden on the customer. The ERP vendor’s team handles all technical upkeep: servers are managed in data centers, software updates are applied automatically, and backups are routine. This means SMBs do not need to hire dedicated IT staff for their ERP; support is built into the service. Cloud ERP has “little to no maintenance costs” – maintenance is included in the subscription fees. A cloud model relieves the customer of many responsibilities for maintenance and software support. If something goes wrong, the vendor typically provides a helpdesk or support contract.

In contrast, On-Premise ERP maintenance is entirely on the business. All software patches, security fixes, and hardware upkeep must be done by the internal IT team. This requires ongoing time and money. For instance, when a new version of the ERP is released, the company must plan an upgrade project – often a costly and disruptive process. If a server fails or performance degrades, the IT staff must troubleshoot or replace components. An SMB with a small IT department may struggle to keep up with these demands.

Because cloud ERP vendors are responsible for the tech stack, they can push updates more frequently and consistently. Cloud ERP customers benefit from faster innovations and quicker access to new updates, keeping the system up-to-date and improving continuously. On-premise customers often skip updates to avoid downtime, which can lead to outdated functionality over time. Thus, Cloud ERP not only reduces IT workload but also ensures the ERP is always on the latest version.

Overall, maintenance and support favor the cloud approach for SMBs. Cloud ERP lets businesses stop spending extra time, money and resources on server maintenance and infrastructure, whereas on-premise ERP often means dedicating staff just to keep the system running. Many organizations that lack extensive IT teams find cloud ERP a much more manageable option for maintenance.

Performance and Accessibility

Performance and accessibility are key considerations for daily operations. Cloud ERP delivers data and functionality over the Internet, which means performance can depend on a reliable connection. For routine tasks, cloud ERP can be very fast and available, especially when using high-bandwidth corporate networks or modern cloud CDNs. Major cloud providers use high-speed networking and load balancing to ensure responsiveness. In practice, for many SMBs, the convenience of anywhere access outweighs any minor latency concerns.

Speaking of access, cloud ERP shines: users can work from any location or device. With SAP Business One Cloud, all your key business information can be accessed on-demand worldwide using any device (PC, Mac, tablet, etc.). This enables mobile workers and remote offices to input and retrieve data in real time, drastically improving collaboration. Acumatica similarly notes that cloud ERP provides unparalleled accessibility, allowing employees to input or analyze data anytime from anywhere. Real-time data syncing in the cloud means everyone sees the latest information, which can accelerate decision-making and improve customer responsiveness.

On-premise ERP performance is governed by local infrastructure. In a well-equipped environment, on-premise systems can be extremely fast because they rely on internal networks. However, accessibility is limited: unless connected via VPN, users outside the office may find it harder to connect to the ERP. For a remote worker to use an on-premise ERP, the company must provide a secure remote access solution. Additionally, if the on-site server encounters issues (power outages, hardware failure), the ERP can be down for hours or days. When an on-premise server fails and there is no backup, business operations stop and any un-backed-up data is lost. Downtime directly translates to lost productivity and revenue.

Cloud ERP vs On-Premise ERP: Choosing the Right Deployment

When selecting between cloud and on-premise ERP, SMBs should weigh their priorities. For example, if an organization is comfortable paying a large upfront cost, requires heavy customization, has a strong in-house IT team, and wants to avoid any dependency on the Internet, on-premise ERP might be preferred. 

In contrast, businesses that want lower monthly fees, need scalability, require fast implementation, or don’t want to worry about maintenance will lean toward cloud ERP. Indeed, Cloud ERP is often chosen for its lower initial cost, quick deployment, and ease of growth support. As one guide puts it, opting for cloud is sensible if you prefer lower ongoing payments, rapid rollout, and want the vendor to handle upgrades and support.

In short, companies should match the ERP type to their needs. A capital-constrained SMB that expects rapid growth and has a remote workforce will typically find cloud ERP the better fit. A larger firm with steady requirements, existing IT infrastructure, and stringent data controls might still use on-premise ERP. But the industry trend is clear: more businesses are moving to the cloud for the flexibility it affords.

Real-World ERP Solutions in the Cloud Era

SAP Business One (Cloud and On-Premise)

SAP Business One is a popular ERP for SMBs that can be deployed either on-premise or in the cloud. In the cloud configuration (SAP Business One Cloud), the software runs on platforms like AWS, giving companies real-time visibility across all functions. Here at Softengine, we are a SAP Premier partner and we see that SAP B1 Cloud provides integrated management of financials, sales, inventory and more, so managers get up-to-the-minute data on mobile devices. Security in this model is very robust: Softengine notes AWS’s cloud safeguards data with encryption and redundant backups, making it “the most secure system available”.

By moving SAP B1 to the cloud, SMBs can also save costs. Softengine points out advantages like no server maintenance, zero downtime, and avoiding hardware refresh cycles. Remote access is seamless – any user can log into SAP B1 from anywhere to enter orders or check reports. Additionally, the cloud offers flexibility: users can be added or removed easily to match changing needs.

For on-premise SAP B1, all these capabilities are still present but rely on local servers. Companies choosing on-premise SAP B1 may do so to customize the system deeply or comply with local data rules. Softengine’s experience shows that even on-premise SAP can be adapted for SMBs with limited IT resources. But their messaging is clear: hosting SAP B1 on AWS combines SAP’s functionality with enterprise-grade security and cost savings. This makes SAP Business One a real-world example of how cloud deployment modernizes a classic ERP for growing businesses.

Acumatica Cloud ERP

Acumatica is a cloud-native ERP designed for SMBs and is often cited as a leading example of Cloud ERP. Acumatica is built on a flexible platform that provides both cloud (SaaS) and on-premise deployment options. This means businesses can start on-premise and later move to the cloud, or vice versa. A key advantage of Acumatica’s cloud version is its adaptability: it delivers unparalleled adaptability with a scalable structure that grows with the company. 

In the Acumatica cloud environment, updates are continuous and innovations are rapid. Acumatica’s commitment to innovation keeps customers at the forefront of technology. The system supports real-time data, advanced reporting, and integration of financials, CRM, inventory, and more.

From a security perspective, Acumatica implements robust measures as part of its design. It uses data encryption, regular security audits, and complies with industry regulations. Thus, SMBs can rest assured that their Acumatica Cloud ERP meets modern security standards.

Overall, Acumatica Cloud ERP exemplifies many cloud benefits: high scalability, ease of updates, and strong security. It shows how a modern ERP, when cloud-based, can provide SMBs with a powerful, unified system that is simpler to manage than legacy on-premise applications.

Conclusion: Why Cloud ERP is the Future of ERP

All signs point to cloud ERP as the direction in which ERP technology is heading, especially for small and mid-sized businesses. Industry trends show a rapid shift toward cloud-based systems. For example, NetSuite reports that businesses are increasingly moving core applications to the cloud for simpler deployment, lower costs, and greater elasticity. This movement is reflected in market forecasts: the cloud ERP market is expected to nearly double from $72.2 billion in 2023 to $130.5 billion by 2028. Such growth underscores that Cloud ERP is not a passing fad, but a fundamental change in how enterprise software is delivered.

Several factors drive this future. The rise of remote work and global operations demands anywhere-accessibility, which cloud ERP naturally provides. Moreover, emerging technologies (AI, IoT, advanced analytics) are easier to integrate in cloud platforms, giving businesses powerful new capabilities quickly. Cloud ERP vendors can update systems continuously and leverage edge computing to improve speed and reliability across distributed networks.

Experts also emphasize competitiveness: Gartner predicts that by 2028, cloud computing will shift from being a technology disruptor to a necessary component for business advantage. In other words, cloud is becoming the norm, not the exception. Softengine concurs, stating that “the future of ERP solutions truly lies in the Cloud environment” due to state-of-the-art technologies and innovations.

For SMBs, moving to cloud ERP means future-proofing operations. It provides the agility to adopt new features, the security of professional data centers, and the scalability to grow quickly. Cloud ERP’s subscription model also aligns well with modern financial planning. Given the cost benefits, enhanced security, and positive industry forecasts, many analysts conclude that cloud ERP represents the future. Businesses that invest in cloud-based systems today will be better positioned to adapt to changing markets than those tied to aging on-premise setups.

Softengine is Here to Help!

Partnering with Softengine, a Premier SAP Business One Partner and a Gold Acumatica Partner, for your ERP implementation not only streamlines the data migration process but also ensures a seamless transition to your new ERP platform. Our team’s expertise, dedication, and commitment to customer success make us the ideal partner for organizations seeking to unlock the full potential of their ERP investment and scaling in the digital economy. Contact us to learn more about how our clients utilize ERP to enhance and scale their organizations, and see our solutions in action for yourself!

FAQs: Cloud ERP vs On Premise ERP

What is the difference between Cloud ERP and On Premise ERP?

Cloud ERP is hosted by a vendor in the cloud and accessed via the Internet, usually as a subscription service. On-premise ERP is installed on a company’s own servers on-site. The key differences are in deployment (cloud vs local), cost structure (subscription vs upfront license), and management (vendor-managed vs in-house IT).

Why are SMBs moving to Cloud ERP?

SMBs are increasingly adopting Cloud ERP for its lower initial cost, faster implementation, and flexibility. Cloud ERP eliminates large hardware investments and allows businesses to scale and upgrade quickly. It also provides features like real-time mobile access and frequent updates, which help SMBs stay agile and competitive.

How does the cost of Cloud ERP compare to On Premise?

Cloud ERP typically has lower upfront costs since there’s no need to buy servers or licenses. Instead, companies pay ongoing subscription fees. This can reduce capital expenditure and often yields overall savings. Over time, the total cost depends on usage, but Cloud ERP generally makes budgeting easier for SMBs by spreading costs and including maintenance in the fee.

Is Cloud ERP secure enough for my business?

Yes. Modern Cloud ERP vendors invest heavily in security (encryption, redundancy, audits) and use enterprise-grade infrastructure like AWS. Cloud hosting provides high levels of security because dedicated teams manage backups and cyber protection. While businesses give up some direct control, they typically gain stronger and more up-to-date security than they could manage on their own. Nonetheless, companies with specialized compliance needs should review security features with their vendor.

How does Cloud ERP scale as my business grows?

Cloud ERP is highly scalable. You can easily add users, offices, or modules without new hardware. The vendor simply allocates more resources in the cloud as needed. This means an SMB can expand smoothly – for example opening a new location or hiring 50 new staff – without disrupting the ERP. On-premise ERP, by contrast, often hits limits and requires physical upgrades to scale. In essence, Cloud ERP grows on demand, aligning with business growth trajectories.