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ERP Cost Comparison: Which is Cheaper: Cloud or On-Premises?

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Written by Laura Schomaker

March 4, 2021

One question comes up for businesses considering software solutions is whether they should host their solution on-premises or go with a cloud-based solution. On-premises ERP, for example, comes with many advantages, especially for companies that need more control of their data and infrastructure. Cloud, as a contrast, can be easier in terms of ongoing management. How do these two compare in terms of cost, though? Which is cheaper in the long run for your business? How do you perform a fair ERP cost comparison? Let’s discuss. 

ERP Cost Comparison Cloud vs. On-Premises: The Breakdown 

Many believe that converting to the cloud today is easier and more affordable for a company than ever. According to Acumatica, converting to a cloud-based solution can deliver an ROI of 70%, as an example, for a company with $30,000,000 in annual revenue and 150 licensed users.  

ERP cost comparisons between cloud and on-premises software can be like comparing apples to oranges, however. The best approach is to determine which type of software ticks the most boxes for your company. This includes considering your preferred cost structure, your use cases, and how deep your in-house IT bench is. 

CapEx vs. OpEx 

One way in which cloud-based solutions have the advantage is in user costs. With a cloud-based solution, you are typically paying a known rate each month based on your number of users, whereas on-premises can involve an upfront, sizeable licensing fee.  

Of course, the upfront cost may be helpful for some companies. A major consideration that comes into play when considering the cost of cloud vs. on-premises is how your company prefers to structure costs. On-premises software requires a substantial investment of upfront capital in infrastructure, making it a capital expenditure. Cloud software involves ongoing operational costs for licensing and usage fees each month. Do you prefer the CapEx approach or OpEx? Weigh this carefully when choosing between the two.  

Additional Cost Considerations for Cloud and On-Premises 

There aren’t necessarily strict parallels between the cost of cloud and the cost of on-premises. Both have unique structures and, therefore, bring with them different costs. Cost considerations to keep in mind include: 

The life of a physical asset: On-premises means if a server or other piece of hardware goes down, you are on the hook for the cost of a replacement. A cloud-based solution doesn’t push out the cost of a replacement part to you, the end user.  

IT Staff: On-premises will mean more in terms of IT staffing costs than a cloud-based solution. You will need more staff to not only manage the software but also to maintain and monitor your physical assets.  

Outage costs: What if a public cloud goes down? Would your business incur significant costs downstream? Would you lose hours or even days of production that could harm your bottom line? 

Finally, certain companies have to consider the long-term implications of security in the cloud. While the cloud is safer than ever, some industries demand that companies maintain a tighter control on dataIn these scenarios, the large, upfront expenditure of an on-premises solution is well worth the investment.  

The cost and value of cloud or on-premises really changes from one business to the next. So, to perform an ERP cost comparison, the first step is to determine which type of ERP fits your needs best holistically. Get started, learn more about the cost of ERPand start exploring your options 

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