(b) For on-premise software, these fees can be as high as 18% of the software license fees, annually. Hosted software typically includes basic support (and all maintenance) in their per user monthly subscription fee.
Other TCO considerations -
Software licenses – Often times, (because of discounts offered by the software vendors), organizations purchase CRM software licenses well before they are ever put to use. There are even nightmarish stories of organizations that spent a lot of money on software licenses that were never deployed. With hosted software, you'll only need to pay for what you are using.
Project implementation costs – IT infrastructure, site preparation and project management costs are generally significantly higher for on-premise CRM then for hosted CRM solutions. In addition, most hosted CRM solutions offer limited customization and system integration capabilities, so these costs tend to be much less then for on-premise solutions, as well.
But, will you ever need to switch from a hosted to an on-premise CRM solution?
Each of the following situations could put you in a position where you may want to migrate from a hosted to an on-premise solution.
- Do you anticipate that (somewhere down the line) your organization's growth will result in the need for more comprehensive or customized CRM software functionality?
- As CRM is implemented throughout your organization, will there be a growing need to have access to the CRM system without the need for an internet connection?
- Will the need to integrate your CRM solution with your other business systems become more important?
- Will your internal IT infrastructure and resources grow to the point where it can more easily support an on-premise CRM solution at a much lower incremental cost then what you'd have to incur today?
If any of these situations could occur in your organization, then comparing hosted versus on-premise CRM TCO for the purpose of finding the "break-even point" may be a moot exercise.
It will be more important that you have some idea as to when you might need to switch from a hosted to an on-premise CRM solution, what your software migration plan might be and what this migration might cost you?
I know that costs are always a key concern of every SME. But, remember, CRM is a process, not a project. You'll always be spending on CRM. And you will be happy to do so if you are confident that for every dollar you spend, you're getting a solid return on your investment over a reasonable timeframe.
Every CRM initiative should provide a measurable improvement in your ability to get, keep and grow profitable customers; and with proper CRM planning, this can be accomplished with either a hosted or an on-premise CRM solution.
This was first published in March 2004