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Noam Tamarkin

Calculating the real cost of SaaS

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Hello to my readers,

In my previous posts about SaaS, I discussed mainly the applications themselves.
Today I would like to do some quick calculation of the SaaS application cost.

Since my expertise is ERP, let's assume that there is a ERP SaaS application.
You, my experienced IS colleague, should know what is the ratio between the hardware, license and implementation cost.
The almost fixed cost is the hardware + license + annual maintenance. These are also easy to predict.
The flexible cost that is also impossible to predict is the implementation.
The ratio is then: (implementation) / (hardware+license+annual maintenance).
The rule is that the ratio is higher as much as the application is complex.
You could read about it in this article: Planning & Budgeting for Software

So, what am I driving to?
When you are considering to start using a SaaS application, you mainly compare the predictable costs - hardware+license+annual support.
If the application require some level of on-site implementation, it will cost you the same as any other application.

What are the practical take here:
  1. You have to be careful when you calculate the move to SaaS
  2. Large enterprise will never move to SaaS because their ratio is 10 or more
  3. Someone should come up with remote implementation capabilities and break the equation.



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Well, I did not expect these conclusions after reading your previous post. I do like what you have said here.

I would be also interested in reading of your comments on the SaaS ability to adopt changes that are coming almost every day in nowadays.

Thanks for your comment. I will try to address the issue of constant change that is imposed by legal and other requirements that are external to the core business.

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In this blog, Noam Tamarkin provides ideas for improving and better integrating your applications.

Noam Tamarkin

Senior software architect and CTO. Experience in solution design and implementation. Holds the ability to understand complex business processes and translate them to technology. Expert in Enterprise applications, integration, SOA, SaaS. Experienced in project management, technical infrastructure, procurement and manufacturing.


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