Marketers and decision-makers appreciate the features and benefits of SaaS(Software as a Service) such as scalability, accessibility, and availability. But there is one of the most important benefits, as I see it, that they do not consider very.
They do not notice that SaaS rescues money
Co-founders who have formed cloud-based infrastructures designate that, while they are so pleased with their decision to go to the cloud, there can be notable costs associated with SaaS. Costs often include per-user fees, platform costs, and partner per-user fees. In addition, providing contents, UX design and taking photos fees can be as high-priced as for on-premises systems.
Cloud providers often argue that the real benefits of SaaS are not in direct cost savings but in the flexibility, agility, and scalability benefits that are derived from moving systems to the cloud. Nevertheless, for organizations to make intelligent decisions regarding cloud-based systems, it is important to understand the relative costs of SaaS vs. on-premises systems.
Cloud providers usually argue that the real advantages of SaaS are not in direct cost savings but in the flexibility, scalability, and accessibility benefits that are obtained from moving systems to the cloud.
However, for businesses to make smart decisions regarding cloud-based systems, it is necessary to understand the relative costs of SaaS vs. on-premises systems.
In this post, I`ll show you how many vision existed about the cost of SaaS and how costing strategies designed by cloud providers effect it. In my case study, I gather information form developer boards and CRM database to show how much money is saved by a real customer?
Does SaaS save money?
Why customers come to the opinion that SaaS does not save money? There are at least four possibilities.
- Case 1: SaaS does save money, but clients do not understand it. In other words, customers do not recognize the cost of staffing and supporting on-premises systems, such as developing futures, upgrades, and fixing bugs. These costs are excluded or hugely reduced with SaaS. But customers do not fully know those costs, they do not calculate savings. Or they might be not important systems update that their team is paying for.
- Case 2: SaaS does save money, but you only achieve those savings when you remove your existing systems. If you have a system, moving just one of them to the cloud does not cut off your data center or data center staffing. So, you are not able to recognize the cost savings from eliminating the data center.
- Case 3: SaaS saves money, but vendors do not pass those savings to customers. In other words, SaaS applications are cheaper for vendors to design, develop, deploy, and maintain, but providers are just matching the prices of vendors and hold extra gains.
- Case 4: SaaS does not save money, but the value of SaaS in terms of flexibility, accessibility, and scalability is so overwhelming that it is worth it to customers to pay extra.
These four cases are not mutually exclusive. For example, SaaS may save money (Case 1) and also allow vendors to appropriate some of the cost savings as profit (Case 3). However, answers may differ for different SaaS applications. For example, perhaps cloud CRM saves money, but cloud ERP does not.
My case study
The question is still open. From the customer’s point of view, does SaaS save money?
To answer the question, I use our company data to measure of applications cost and profit to customers. In other words, I asking our customers to take part in our regular annual analysis, compare the spending ratios of these select customers against our developing ratios.
Through this study, I hope to be able to answer three main questions. First, do bussiness that have gone fully to cloud spend less than those have not? Second, how does the spending differ? Finally, where do they see the value of SaaS?
This may not be an acurate analysis becuse this is our first anual analysis with a few customers. However, I hope to be able to refomre my analysis next yer with more valueable data.
The real cost of develop
Our development team is managed based on Agile principles. So in every sprint, developers take cards and move them to toward the DONE column. Finally, our QC team checks each card by E2E test and move them to the version column. At the end of a spring, the version column is archived by the board owner.
I get the list of last 12 sprints (each of them is about 30 days) and choose cards related to the customers' needs directly. Finally, I sum up spent points on each column to find out the development cost ratio.
The mean points spent on each sprint (month) of development is about 75. This cost is excluded from maintenance, deploy, and research (as you know, maintenance of a system is very hard and needs much more resources than develop).
How much a customer pay
Our marketing strategy is: Customer should pay as much as resources used (This is the combination of Case 1 and Case 3).
However, there is the minimum bound of resources for our customers (3GB of HDD and 20GB of traffic) to pay which cost about 8 US$.
The following figure shows the average cost of our five most active customers. Note that, they usually consume resources less than our limits.
Develop cost vs. customer pay
Suppose that our team is consist of peoples within lowest-paid 25 percent of paid developers based. Then we pay 35 US$ for an hour to develop. The following figure shows the developing cost and the percent of it paid by a customer in a year:
Yes, our customers paid n time lower than the actual developing cost (a customer pays just 0.3% of development cost in a year). We were working hard this year and this may cause develop cost is much more than customer pay.
Business owners come to the opinion that SaaS may not save money. In my study, they can save 99 times of what they pay. However, it may be very different from a bad strategy of a cloud provider.