Total cost of ownership (TCO) is a critical factor when deciding whether to subscribe to a SaaS solution or purchase on-premise software and determining which software is best for your organization. In our third and final post on the subject, we discuss three more expenses that should be included in any TCO analysis in order to give you the true TCO picture.
In assessing TCO, an often-neglected consideration is opportunity – or the loss of it. If your on-premise software requires a $100,000 outlay for hardware and training, how does that compare to $100,000 spent on marketing or hiring more sales personnel? The former is a mix of asset and operating expense; the latter is costs that can generate new revenues and profit.8
SaaS provides your business with the opportunity to pursue better operations and revenues, unencumbered by the mix of visible and hidden costs of on-premise software.
“When analyzing software TCO, consider the opportunity costs involved. Every dollar spent on on-premise software — on hardware, maintenance, training and other necessities— is a dollar less for strategic and business initiatives that may generate revenue or reduce expenses.”
– Sal Caldarone, CEO & Co-Founder, rSquared CRE
- With SaaS, you spend money doing what you do best – selling and serving your customers.
Factor: Data Ownership and Security
Organizations own their data, whether the data is on an in-house server or a cloud-based SaaS server. With a SaaS provider or any third-party data management company, data security is their responsibility, and any associated costs are included in your subscription fee. Take a close look at your contract and make sure it includes measures that address all your security concerns.
“The best means of protecting yourself is to carefully read and understand the terms of the contracts with your data vendors. Often these provisions can be negotiated. For example, you can require that your data be anonymized when it’s used by the vendor. The key is to carefully think through what rights you have (and need) so you can avoid problems down the road.”
-Adam Ruttenberg, Partner, Cooley LLP
“Data security is a big concern for every company nowadays, big or small and regardless of industry. A major advantage of using SaaS is that SaaS providers are responsible for the security of their applications. Their very existence depends upon providing safe, secure, proven software solutions to their clients and safeguarding their data with the latest data security best practices and measures.”
– John Brosnan, Chief Operating Officer & Co-Founder, rSquared CRE
- Your in-house team and a SaaS provider are equally concerned with the security of your data. SaaS has a cost advantage in that security measures are included in your subscription.
Factor: the Hybrid Software Alternative
Some software providers offer a hybrid solution, an approach that combines elements of both SaaS and on-premise software. While the hybrid model offers some benefits, it has the downside of dependence on in-house hardware, infrastructure and maintenance. As a result, hybrid software TCO is still high when compared to a SaaS solution.
- A hybrid solution may appeal to a company with a significant investment in hardware and IT staff already in place – short-term, the cost of ownership is less. Over time, the costs of hardware, infrastructure and personnel will reverse the equation.
Scorecard: SaaS beats on-premise software
In comparing SaaS to on-premise software, SaaS consistently matches or beats on-premise for all important cost factors. The exception is the initial price: SaaS may have a higher initial price than off-the-shelf9. It is only when measuring Total Cost of Ownership that you discover that you are likely saving money with SaaS.
See for yourself: SoftwareAdvice.com has a TCO Calculator that lets you easily calculate and compare the true ownership costs of SaaS and on-premise software.10
A Final Word on TCO
That concludes our rBlog series on software TCO. The bottom line: when deciding between SaaS and on-premise software, TCO should be an integral part of the decision-making process. And, when comparing the TCO of SaaS to on-premise, SaaS generally has a much lower TCO and from a financial standpoint makes much more sense.å
If you are or will be considering new software anytime soon, we suggest downloading our free white paper on the subject- Total Cost of Ownership – SaaS vs. On-Premise Software. It can serve as a quick and handy reference guide and help ensure that you are including all the essential components in your analysis so that you get a true picture of TCO.