(336) 315-3935

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

piggy bank

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. Invest in infrastructure for on-premises software, or pay for cloud software’s licensing and usage fees? What’s your preference – CapEx or OpEx? Consider this when making your decision. 

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 

You May Also Like…

Why is ERP So Expensive? Top Costs to Consider.

Why is ERP So Expensive? Top Costs to Consider.

Enterprise Resource Planning (ERP) systems are often implemented by growing businesses to automate manual processes, but they can be expensive. The direct costs associated with ERP systems include software costs, consulting costs, data migration costs, training costs, and customization and integration costs. With so many things to consider, how can you stay on budget? Consider these expert tips.

read more
What Factors Affect the Cost of ERP Software?

What Factors Affect the Cost of ERP Software?

ERP software cost factors vary from company to company and can have an enormous impact on the price of ERP software. Our goal is to provide you with detailed information about five different types of ERP software cost factors so that you can make an educated and informed decision when comparing your quotes.

read more
How Do You Properly Compare Software Vendor Quotes?

How Do You Properly Compare Software Vendor Quotes?

To properly compare ERP quotes from vendors, start by identifying your business needs, understand what should be included in a quote, run a SWOT analysis on vendors, and talk to them. Visualizing pros and cons can help understand the value of each solution. Finally, talk with each vendor to gauge what they’ll be like to work with.

read more