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How do you compare a SaaS annual fee to a one-time license fee?

ERP, Software Selection

We have found that on average the one-time (on premise) license fee is 3 times the annual fee based on our experience in evaluating RFP responses from vendors. One might think that the ratio between license and annual fee should be greater but that does not take into account the additional hosted services provided by the SaaS vendors including maintenance fees which are billed annually by on premise vendors at approximately 20% of the license fee. It’s still early days for SaaS and as competition heats up the license ratio:annual fee will increase as SaaS fees are reduced. We recommend that even if the SaaS costs are high that you don’t rule out SaaS vendors just on cost. They are willing to negotiate and there are other factors that should be considered in making a decision.

2 Comments

2 Responses

  1. Carla Pickard
    July 24th, 2017 at 5:44 pm

    Another important consideration is hardware costs, both the upfront purchase and on-going. Cloud solutions are all in, whereas the customer needs to assume the responsibility for either on-premises or hosted hardware for one-time licensed software. This can be difficult for SMBs as they now need the expertise to manage the hardware on top of the new software. Cloud solutions also come with their own back-up/DR, which can be a significant cost for on-premises or hosted hardware. However, with cloud solutions there can be hidden costs, like high data storage fees when you exceed a certain threshold. As you say, ERP in the cloud (SaaS) is relatively new and there are a lot of considerations. I was hoping that this article would shed more light on how to make the comparison.

  2. Graham Finney
    August 2nd, 2017 at 9:16 pm

    Read the contract carefully. Salesforce has an automatic annual increase of 7%. We added a module to Salesforce, used it for one year, then determined it was not needed when I took over responsibility. But cancelling any portion of our annual agreement allowed SF to increase the rates by any % they wanted. They started at about 20%, then we negotiated to about 15%, but what a lousy feeling it left me with. Some SAAS vendors have a very market friendly approach, maintaining market pricing, allowing you to exit with 1 month notice, commit only to monthly contracts, and treat customers with respect. Let’s hope more follow suit.

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