The cloud vs. on-premise: Which one is cheaper?
by Jeff Ryan, MD of AWCape, a Sage Business Partner
Most countries have now removed most COVID-19 restrictions. However, the mad rush for everyone to WFH (Work from Home) two years ago caused a spike in cloud solutions on an unparalleled scale.
In most cases, this was an enforced choice for most businesses and now that the dust is settling, businesses are considering their options – whether it was the best choice and if there isn’t perhaps a better, different option.
Over the last few years, we have assisted many companies to move to the cloud.
The preferable option is to buy a powerful cloud or Software-as-a-Service (SaaS) product. But, for those companies unable to make that transition now, other options include cloud-hosted solutions or Private Dedicated Servers in the cloud. The silver lining to this investment is that with all the available options, there are massive cost savings and benefits for the company of going to the cloud.
When speaking to clients, one of these ‘options’ is to go back to the setup pre-COVID. My response to this statement is usually: “We have a free fax machine for that option! 😊”
Their motivation behind this is that it is “cheaper” to run servers locally and have people in the office… I beg to differ.
For the sake of this article, I will be going into detail about the costs of not going to the cloud and highlighting some of the ‘hidden costs’ that businesses aren’t even aware of with a locally hosted solution.
I would also like to highlight that it comes as no surprise that in 2022 more than $1.3 trillion in enterprise IT spending is at stake from the shift to cloud, growing to almost $1.8 trillion in 2025, according to Gartner.
What does it REALLY cost to run your software locally/at your office?
When we present finance, HR/Payroll or CRM software solutions to clients (SaaS or cloud-hosted) and we get to the pricing question… most clients cannot articulate the total cost of their current software solution.
They can very quickly pull up the monthly or yearly invoice for the software, but this is just the tip of the iceberg.
Let’s go through an example to demonstrate this:
Client has Accounting or Payroll software that costs X a month. This requires the following once-off costs (which need replacing every 3 years):
| Server | R 20 000 |
| Screen/Keyboard/Mouse | R 1 000 |
| Network equipment | R 5 000 |
| Server room (Air-con, UPS) | R 15 000 |
| Server room security | R 8 000 |
| Server software | R 16 000 |
| Controllers (RAID etc.) | R 10 000 |
| Once off cost (replaced every 36 months) | R 75 000 |
This R75 000 translates to R2 083 per month over 36 months.
Unfortunately, these are not the only costs. There are also the monthly support costs which are usually not taken into account:
| IT Manager / Support | R 5 000 |
| Windows Remote Desktop* | R 525 |
| Rental for space of server room | R 1 000 |
| Backup & Disaster Recovery | R 300 |
| Total | R 6 825 |
*3 users
Adding this to the R2 083 (for once-off costs) brings the monthly cost to R8 908 per month.
And what about the hidden costs?
The above costs can be pulled from invoices or operational data. But what about those costs that are not seen on an invoice somewhere? Below, are a few examples:
- Time spent by managers to answer any audit questions about IT security
- Emergency IT maintenance / upgrades when things go wrong or suddenly not working
- Downtime due to poor quality infrastructure
- Any fines paid due to non-compliance (POPIA, GDPR, FICA)
- Fraud / theft of data
- Loss of top employees due to frustrations with (older) systems
- Poor productivity in operations
- Brand degradation due to any of the above
The above items can be hard to calculate, but let’s just include the first two:
- Assume 20 hours a year are spent by management for audit purposes. If an hour of management is worth R320/h (i.e. R600k a year) then that is another R533 per month.
- For emergency IT maintenance, let’s be conservative and say there is only one half-day call out a year (i.e. 4hours @R500/h or R2000 a year). This is R167 per month.
Bringing the total up to R9 608 per month.
The good news? There are (more cost-effective) options!
There are plenty of options for SaaS or for hosting in the cloud.
But it can be overwhelming due to the multitude of choices and providers, and you probably will need to ask for advice to guide your choice to ensure it is the best one.
Sage has always sold, implemented, and supported its software through certified and trusted Business Partners. This ensures that the client relationship is a closer one than just a vendor-purchaser one. The business partner is always there to guide and support the client as to what is best for their unique circumstances and to drive business efficiencies across the business.
As a practical example of this, during the COVID hard lockdown, AWCape responded to our client’s requests for help in moving immediately to a “Work From Home” business environment by expanding our cloud hosting services.
The intention of our cloud hosting service is from a convenience aspect and to be a ‘one- contact-point’ for our clients with anything related to their Sage system. For example, should their Sage payroll solution suddenly not work before the month-end payrun, we will investigate and troubleshoot what the problem could be and fix it immediately. This way, our clients will not waste crucial time to ‘figure out’ if it was an internet / connection issue or a system fault.
Who you gonna call?
Having one point of contact with AWCape simplifies this process (and reduces staff stress levels). As will be seen below, it also reduces the infrastructure cost for these businesses and the current duplicate costs for upgrade and maintenance cycles.
Additionally, when our clients need more members to access the cloud solution, it is a simple process on our side to extend the number of users to access the system remotely.
When flexibility meets functionality
AWCape does not believe in one-size-fits-all solutions. An option we would recommend is to consider a SaaS solution, as it may be a better option than cloud hosting for some clients.
However, if AWCape was to host a finance, payroll or CRM system similar to the above configuration, the per month cost would be approximately R5 374 a month.
| Private Dedicated Server | R 2 619 |
| Windows Remote Desktop | R 525 |
| Managed Services** | R 1 230 |
| Full System Backup (FSB) | R 1 000 |
| Total Monthly cost | R 5 374 |
This is a saving of R4 235 a month i.e. 44% more cost-effective AND the savings would be more if a bigger solution was hosted with us.
Besides the cost savings, a hosting solution like the above has world-class data replication, backup and disaster recovery. It adheres to all POPIA and related compliance requirements. The system is also monitored and kept up to date by certified trained professionals who are working with the latest cyber security technologies to keep your data safe and software up to date.
Lastly, it comes with a few more restful nights for the business owner or CFO that their payroll and /or month-end will run smoothly. And what is the true value of that?
**If you need help making a decision or if you have any further questions, get in touch with our team at info@awcape.co.za
You must be logged in to post a comment.