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What are the consequences of having many custom entities in Dynamics 365 on-premise ? Should we implement our solutions with as few entities as we can or not ?
For example: I can implement two functionalities in one entity and also I can implement them in two separate entities. What's the accurate solution for adding custom entities ? thanks.
There are no performance issues or limits on the number of entities. In general, I'd lead this based on the ease of data entry. All things being equal, asking users to create records for multiple entities (each with a different form), is not quite as effective as just using one entity, if that makes sense. That said, if you find yourself having to conditionally hide many fields on an entity, this can get over-complex, and it may be better to split this into multiple entities
On top of what David suggested, i would say you can follow most of the relational database design or data modelling principle when you are creating Custom Entities in CRM.
When you create an Entity in CRM, behind the scene it creates an SQL table. When you add a lookup field to an Entity, it creates a relationship 1:N.
What would you do if you were to design as your own database, you could follow the same approach. Try and normalise data as much as possible don't store all the data in one entity(table) but you can do some responsible de-normalization.
You also need to take the User Requirement into account. What your end users want, when you design entities you have to keep that in mind as well. If you store all in one entity, you may not be able to provide different views and forms without doing a lot of customisation and code
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