Cloud vs. On-Premise CRM: A Look at Costs and How They Compare

071116_TS_BLOG_CLOUDVSONPREMISE_COSTAs we wrap up our series on the major differentiators between cloud-based and on-premise CRM software, today we’re taking a look at one of the most critical—and sometimes polarizing—aspects of the debate: cost comparisons. Investing in any enterprise-wide solution can be a significant financial undertaking, and to this end it’s important to take into account all aspects of a given scenario to ensure maximum long-term ROI and sustainability. While it can be difficult to pinpoint exact, total CRM costs for cloud-based and on-premise solutions due to the inclusion of multiple “soft costs” (e.g. the price of downtime, hardware depreciation, etc.) that make an apples-to-apples comparison nearly impossible, there are major differences between the two operational environments that can help drive a more informed financial decision-making process. Let’s take a look at some of the major factors to consider when thinking about making an investment:

Installing and Implementing: The Impact on Infrastructure

One of the more apparent (and relatively straightforward to measure) financial considerations is the initial price required to get the chosen software solution up and running. While cloud-based CRM scenarios, handled off-site by a third party provider without the addition of any on-site hardware, may appear to be less cost prohibitive in this aspect, there are some situations in which the one-time cost of on-premise systems can actually save companies money overall, as compared to the ongoing cloud fees and subscriptions required to maintain a cloud-based solution. These cost savings are especially great for companies who already have an existing on-premise infrastructure in place, with a majority of costs centered on simply maintaining and periodically upgrading those systems.

Getting up to Speed: The Price of Training and Utilization

Regardless of the model chose, either solution will require a period of employee training, and while this time will be important for all departments, it is especially critical for your IT team, who will be responsible for ensuring all users have the resources they need to access and implement the software. As such, this timeframe can be significantly longer for teams learning the ins and outs of cloud computing, especially ones used to working in a traditional, on-premise environment.

Once your teams are up and running, how often they will utilize the application is another factor to consider before making the move to either a cloud-based or on-premise CRM solution. While the “pay-as-you-go” and “price-per-seat” payment models popular with cloud-based implementations can help companies reduce costs associated with underutilization, for those with fully maximized infrastructure, this pricing structure can be less beneficial, especially straining small-to-medium businesses (SMB) who cannot afford to fill the minimum user subscriptions often required to fulfill such pricing requirements. While this flexibility can create substantial cost savings for companies who routinely expect “bursts” of activity, it can, over time, cost more in the long-term for companies who typically operate in a steady state. In fact, taking this consideration into account, one recent report from Forbes magazine found the true cost of cloud models to be roughly twice those of organizations running software out of on-premise data centers.

Price Points: The Big Picture of CRM Financials

While a concrete analysis of cloud-based versus on-premise CRM costs may be difficult to pinpoint, the areas detailed above are important talking points for a deeper conversation, specifically one that takes into account how each organization plans to utilize the solution and to what extent these considerations will influence and direct their final decisions. Overall, while cloud-based systems have typically been lauded for their cost savings potential and efficiency gains, it’s important to note how such benefits are dependent on specific operating environments, and often come with additional metrics and expectations that must be met to realize such advantages. Researching and analyzing these costs in greater detail can lead to a clearer picture of how much each solution will cost your company—and how much you will gain.

Sources:

Bruzzese, J. Peter, “A Move to the Cloud is No Simple Calculation,” InfoWorld, October 21, 2015, http://www.infoworld.com/article/2995519/cloud-computing/moving-to-the-cloud-is-no-simple-calculation.html.

Gillis, Tom, “Cost Wars: Data Center vs. Public Cloud,” Forbes, September 2, 2015, http://www.forbes.com/sites/tomgillis/2015/09/02/cost-wars-data-center-vs-public-cloud/#4b1d1a223e39.

Hooven, “Choosing the Right CRM Approach: SaaS vs. On-Premise,” OSF, http://www.crmintegrator.com/saas-on-premise-crm.