TCO Calculator Helps Users Determine Best Software Solution

Patrick Avery

With high costs of software licenses and hardware, software-as-a-service, a software deployment model in which an enterprise application is delivered and managed as a service, has emerged as a viable alternative to an on-premise software solution. IT Business Edge contributor Michael Stevens has uploaded a SaaS vs. On Premise TCO Calculator, which lets you quickly compare the total cost of ownership (TCO) of a SaaS solution to the TCO of an on-premise solution.


Costs are divided into two categories: up-front and ongoing. While SaaS marketing materials sometimes imply that there are no significant up-front expenses for SaaS, this is usually not the case, and these initial costs should be taken into account. The magazine Destination CRM estimates these costs to be 25 to 40 percent of the up-front costs for an on-premise solution.


Here is a more in-depth look at this calculator and all of the benefits it can offer.


To begin, save the calculator using a new name. This is important if you want to use the calculator for multiple what-if scenarios. Also note that the white data fields are where you can enter data. The yellow fields are calculated based on data in other cells.


Now, enter the number of years to be included in the calculation in the Amortization cell at the RESULTS tab. Then, enter the rest of the data at the COST CALC tab (see screenshot of COST CALC tab below).



After entering the appropriate data, review the results at the RESULTS tab (see below). The calculator presents two results: TCO, and annual costs, the sum of the annual licensing/subscription fees, annual management costs, and the total cost of start-up and upgrades amortized over the number of years in the calculation. The "see-saw" image at the bottom of this chart will give a visual presentation of which solution is more cost-effective for your business.


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