At an IDT conference in San Francisco, Analyst Sheryl Kingstone of the Yankee Group convincingly illustrated that hosted solutions continue to show lower TCO over a five year period and publicly distributed the below Yankee group figures. Contact the Yankee Group for more detailed information.
5 Year CRM Software Total Cost of Ownership Projection
Assumptions: 30 users with Sales, Marketing and Customer Support CRM implementation
Hosted Costs
| Cost Category |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
5 Year TCO |
| |
|
|
|
|
|
|
| User License |
60,000 |
60,000 |
60,000 |
60,000 |
60,000 |
300,000 |
| |
|
|
|
|
|
|
| Professional Services |
45,000 |
15,000 |
15,000 |
15,000 |
15,000 |
105,000 |
| |
|
|
|
|
|
|
| Hardware Infrastructure |
9,000 |
- |
- |
9,000 |
- |
18,000 |
| |
|
|
|
|
|
|
| Networking Operations |
- |
- |
- |
- |
- |
- |
| |
|
|
|
|
|
|
| End User Support |
45,000 |
45,000 |
45,000 |
45,000 |
45,000 |
225,000 |
| |
|
|
|
|
|
|
| Customization Costs |
- |
15,000 |
15,000 |
15,000 |
15,000 |
60,000 |
| |
|
|
|
|
|
|
| Training |
15,000 |
- |
- |
- |
- |
15,000 |
| |
|
| TOTAL |
174,000 |
135,000 |
135,000 |
144,000 |
135,000 |
723,000 |
| |
|
On Premise Costs
| Cost Category |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
5 Year TCO |
| |
|
|
|
|
|
|
| User License |
50,000 |
- |
- |
- |
- |
50,000 |
| |
|
|
|
|
|
|
| License Support |
9,000 |
9,000 |
9,000 |
9,000 |
9,000 |
45,000 |
| |
|
|
|
|
|
|
| Professional Services |
75,000 |
17,500 |
75,000 |
17,500 |
17,500 |
202,500 |
| |
|
|
|
|
|
|
| Hardware Infrastructure |
30,000 |
- |
30,000 |
- |
- |
60,000 |
| |
|
|
|
|
|
|
| Networking Operations |
67,500- |
12,500 |
12,500 |
12,500 |
12,500 |
117,500 |
| |
|
|
|
|
|
|
| End User Support |
120,000 |
120,000 |
120,000 |
120,000 |
120,000 |
600,000 |
| |
|
|
|
|
|
|
| Customization Costs |
- |
17,500 |
17,500 |
17,500 |
17,500 |
70,000 |
| |
|
|
|
|
|
|
| Training |
15,000 |
- |
- |
- |
- |
15,000 |
| |
|
| TOTAL |
366,500 |
176,500 |
264,000 |
176,500 |
178,500 |
1,160,000 |
| |
|
|
We highly recommend preparing your own Total Cost of Ownership analysis if you are trying to evaluate the relative costs of hosted and non-hosted solutions.
Another Comparison Point
Another comparison scenario produced the below cost of ownership analysis for hosted and non-hosted CRM applications.
| On-Premise Assumptions: |
Number of users |
35 |
| |
On-premise per user software cost |
$795 |
| |
Annual software maintenance |
22% of software cost |
| |
Cost of server(s) for on-premise software |
$9,000 |
| |
Annual hardware maintenance cost |
12% |
| |
Fully loaded cost of IT resource for support |
$90,000 |
| |
Allocation of FTE to support software (Ops/DBA/support) |
25% |
| |
Cost of firewall |
$2,500 |
| |
Cost of UPS |
$1,200 |
| |
Cost of operating system and RDBMS |
$6,500 |
| |
|
|
| Hosted Assumption: |
Hosted cost per user per month |
$70 |
Cost Component |
Rationale |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Total |
| On-premise software |
With an On-Premise License you buy the version that is current at the time and begin using it. As major functional enhancements are made, new versions will be released. Updates to the version you purchase are typically included under the maintenance plan. Releases of new versions are rarely covered as part of the maintenance plan. Check with the vendor during negotiations. |
9,275 |
9,275 |
9,275 |
|
|
27,825 |
| On-premise annual maintenance plan |
On-Premise Provides a variety of support / maintenance options. Typically these agreements are annual and expressed as a % of the original license fee. |
2,041 |
2,041 |
2,041 |
2,041 |
2,041 |
10,203 |
| Primary server - depreciation charge |
On-Premise Requires a central computer/server to store customer data. The same server runs both On-Premise For the Web (as a web server) and the database that serves normal On-Premise users while in the office. The server can be quite basic, but needs to have data backup capability and sufficient processing to handle the predicted number of user accounts. This price assumes a single processor with 2 MB memory; 100GB hard drive; network card; remote management card; RAID level 3 drive capable. The cost is calculated based on three year straight line depreciation. |
3,000 |
3,000 |
3,000 |
|
|
9,000 |
| Primary server - hardware support contract |
The hardware manufacturer will charge an annual fee to provide support for the server that includes on site service calls with guaranteed response times and replacement of failed or defective parts. These are generally priced at a % of the hardware cost annually. |
1,080 |
1,080 |
1,080 |
1,080 |
1,080 |
5,400 |
| Backup server - depreciation charge |
This server is a hot backup that can support your system if the primary system fails. It is a duplicate of the primary server. This provides the equivalent redundancy that will be provided by a hosted vendor. |
3,000 |
3,000 |
3,000 |
|
|
9,000 |
| Software for primary and backup servers |
This is the cost for the operating system software and relational database application to run the software. Most enterprise solutions will use Oracle or MS SQL as their database. The cost is double as the same software is required on the back up server. The software is depreciated over three years. |
4,333 |
4,333 |
4,333 |
|
|
13,000 |
| Backup server hardware support contract |
The hardware manufacturer will charge an annual fee to provide support for the server that includes on site service calls with guaranteed response times and replacement of failed or defective parts. These are generally priced at % of the hardware cost annually. |
1,080 |
1,080 |
1,080 |
1,080 |
1,080 |
3,240 |
| Network firewall/router - expensed asset |
To secure your On-Premise data from unauthorized access and to isolate the On-Premise system from the rest of your internal systems and network, you will need a firewall/router that keeps On-Premise separate. |
2,500 |
|
|
|
|
2,500 |
| Backup power supply - expenses asset |
To avoid system crashes, which can cause major disruption to the On-Premise Database, you need to maintain constant power. This is for a uninterruptible power supply system that can run On-Premise Servers for two hours. Price also includes remote management cards to enable monitoring and remote management of the UPS. |
1,200 |
|
|
|
|
1,200 |
| Installation IT support |
Assume 50% during initial set up period of 3 months. Installing the On-Premise software is relatively simple; however, building the server and the network connectivity will require a dedicated IT professional for 3 weeks. |
11,250 |
|
|
|
|
11,250 |
| Ongoing IT support |
Owning your servers requires that you have an IT support professional to monitor and manage your servers. Duties include applying patches to the operating system and applications; restarting services as needed when they fail; managing backup of data files; assuring adequate disk space; etc. Assume 8 hours per week for support of the two On-Premise for the Web servers and related software and hardware. |
22,500 |
22,500 |
22,500 |
22,500 |
22,500 |
112,500 |
| |
|
|
|
|
|
|
|
| Total Cost On-Premise Software |
61,259 |
46,309 |
46,309 |
26,701 |
26,701 |
207,278 |
| |
|
|
| Total Cost Hosted Software |
29,400 |
29,400 |
29,400 |
29,400 |
29,400 |
147,000 |
| |
|
|
| Difference |
|
<31,859> |
<16,909> |
<16,909> |
2,700 |
2,700 |
<60,278> |
|
