Wednesday, August 31, 2011

What do you mean I have to pay a monthly fee!

Often I get asked by prospective clients "Does your product have a monthly fee?" , the answer most of them are expecting is no , it seems that a lot of existing SMBs still have some reservations about utilizing SaaS solutions for their  business.

The reasons for that can vary from the fear of having their data reside outside their office, to reliability to not knowing who you're dealing with at the other end. That said it seems that the most consistent objection to going with SaaS is the notion of having to pay a monthly fee!

Now , before we go any further let me state my opinion on this matter, I believe that SaaS is the obvious solution for most  businesses that want to go forward in today's market, I also believe that a lot of business owners are not as informed as they should  be with regards to how a SaaS model can improve their bottom line.

That said, I also believe that a SaaS model is not always perfect, there can be some hiccups or issues experienced every now and then but in the long term I think the benefits of using SaaS far outweigh these issues.

So lets see if SaaS is the way to go for a small business, here is a bit of analysis based on my personal experience and a bit of napkin math, I won't say that this is 100% accurate but it should give you a good indicator of which option is best when choosing between a SaaS or an installed product.

Lets take a typical piece of business software that is common in today's businesses, a CRM system , we'll compare desktop based versions of these products with their SaaS counterparts, lets get started shall we?


  • Both SaaS and installed solutions offer similar features
  • We're going with a setup for a typical small business of 5 users

Note: I will be using $NZD as the currency in these examples as this is what am familiar with, feel free to alter the numbers based on your knowledge of the products / solutions offered in your region.

License Costs:

  • A typical Desktop CRM system would cost around $420 per user.
  • A typical SaaS CRM system would cost around $45 per user per month

Setup Costs:

  • It would take about an hour's worth of time for an IT professional to install your CRM system on each user's machine, an average IT Professional would charge around $180 per hour
  • It takes $0 to install a SaaS CRM , all you need to do is log-on to your account

From the above, we can see that you will need to use a SaaS solution for over 13 months to have spent the same amount of dollars on the license costs for the desktop counterpart, by that time your Desktop product has reached the stage where it needs to be upgraded , usually upgrade costs are about %60 of the original product price.

You will also need to involve your IT admin to take care of the upgrade so add another hour of their time to that (every year).

For a SaaS solution, upgrades happen in the background you do not pay for any extra to receive upgrades, you get them are part of the whole package.

From this alone you can see that your initial investment with a SaaS product is far lower than that with a desktop product, over time the numbers average out to be almost the same but as far as initial investment is concerned SaaS always wins, Keep in mind that this first chart is only comparing license and setup costs!

So over a 2 year period, the costs initially seem to be the same, however this is not the end of the story.

Backup and Maintainence costs:

  • SaaS products have backup running behind the scenes , so there is no need to spend any money on backup.
  • Desktop products require specialised backup software and Hardware , the cost for a simple backup product is around $175 , add to that the time taken to install and configure the product (an hour at least) Plus the cost for the backup hardware (say a $100 for a simple external HD).
  • With SaaS you do not need to worry about infrastructure , it is already taken care of for you.
  • For an on premise solution you need to invest in infrastructure, an entry level server would cost about $2000 
  • SaaS solutions are mobile by default, meaning you can access your data on the  go independent of the device.
  • With desktop products you more than likely need to use a 3rd party solution for mobile access , this is paid for and a the price for a typically decent 3rd party access solution is around $30 per device per month.

So with all of that out of the way, let us revisit our chart again with the updated costs:

One look at this and you can tell which option is the way to go, if there is a SaaS product on the market that can meet your business needs then it is highly likely that choosing that option will reduce your operational costs greatly over an extended period of time.

So now that we got the numbers out of the way, let us try and tackle some of the other fears / misconceptions about SaaS.

  • "My data is in the cloud hackers can get to it and steal it! " , I chuckle every time I hear this, believe it or not most SaaS providers operate data centres that are far more secure than the back room in your office where your server resides, these people have invested a lot of money to maintain a secure and a reliable infrastructure , chances are you have not.

  • "I don't want to transmit sensitive information outside of the office!" , most of these systems run over secure connections , if you already do on-line banking and buy things through on-line retails stores then you have no right to complain about this =)

  • "Someone might get access to my personal details!", Do you use the internet at all? if so then chances are your personal information is already all over the place whether you realise it or not!

  • "What happens when the internet goes down!?",  this one is legitimate , without internet access you cannot use a SaaS product, that said it is not very likely that you will be having internet issues all the time , over a long period of time the savings you make from running SaaS will more than even out the costs incurred to the loss of internet connectivity!

So there you have it , SaaS is the way to go in this man's humble opinion , it might not be the ideal solution for everyone but it is more than suitable for the majority of businesses these days.

Remember , the figures listed in here are somewhat rough so if you wan't to investigate this any further for your business then I suggest that you do more research!

I'd be very interested to hear from people who use SaaS or on premise software to get their feedback.