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Why Does Cloud ERP Total Cost of Ownership (TCO) Matter To Your SMB?

Posted by Ben Redfield

Oct 24, 2011

When evaluating technology within your business, Total Cost of Ownership (TCO) is an important measurement of value. All too often, the technology vendor and buyer focus on one thing – the acquisition cost. This is primarily due to budgetary cycles that tend to be focused on the short- or near-term.

Numerous studies, going back to the 1980’s show that the cost of acquisition is the smallest part of the overall TCO. In fact, it is generally accepted that the cost of maintenance, upgrades, optimization, management, and training represent approximately 3-5 times the cost of the initial acquisition – over a five-year ownership period.

Because of this, it is critically important that the small business person look beyond the acquisition and implementation costs to the long-term view as to how much will the solution actually cost your business.
Just as one would assess the TCO of an ‘on-premise’ technology solution, the same evaluation must be undertaken for a cloud/SaaS solution. The evaluation criteria and calculation should look something like this:

1. Cost per user, per month
2. Consulting / Implementation Fees
3. Training Costs
4. Ongoing User Support Costs
5. Upgrade Costs
6. Maintenance Costs
7. Extra Application Integration Costs (3rd Party Applications and Information)
8. Application/Environment Backup/Restoration/Recovery Costs
9. Ease and Cost of Adding New Functionality or Modules
10. Ease and Cost of Adding New Users to the Solution/System
11. Uptime Commitments and Cost of Business Downtime

SMB Suite views TCO as a preferred method to compare technology investments when two solutions provide roughly equivalent benefits over the solution lifecycle, but have different type

Topics: Microsoft Dynamics GP, Business Executives, Small Business Decisions, ERP in the Cloud