ROI for SaaS/Cloud offerings
I was asked yesterday about ROI for SaaS based solutions. Until yesterday it had seemed obvious to me that SaaS had little or no upfront costs, and most solutions have zero or little upfront costs in order to try them out that this was the equivalent of dividing by zero. Personally I made the shift long ago to working out the net monthly cost saving/extra revenue attributable adopting a particular SaaS offering – as the investment is negligible.
Using this calculation made it easy for us to decide on using these SaaS offerings:
paymo.biz for time tracking for our consultants (reduced time spent logging and collating, transparency such that small deviances are easily caught early are worth more than $4 month/user),
google for our mail (the effort of continuously improving spam filtering, and occasional server glitches costs more than $50 year/user). The additional benefits that we get from the other GoogleApps was is an unexpected bonus.
Firmstep – our own platform for customer service portals – we had to build it after searching for a solution good enough for our customers turned up nothing for a sensible level of investment. We can run our own platform at a reasonable per-user cost, and are launching it this quarter for third party use. (entire service, for less than the lifetime cost of losing a single customer)
Using this simpler model – I found myself wondering “are there circumstances in which the ROI will be better for installed software than for SaaS?”
I have been ruminating for a while and have come up with little in the way of good, logical scenarios about when SaaS would be the lesser choice for ROI and came up with only two scenarios – the SaaS version unavailable or it isn’t even possible. For everything else – SaaS must have a better ROI. This leads to an obvious conclusion that many people select software without regard for alternatives.
Circumstances where a larger return is created BECAUSE OF A LARGER INVESTMENT:
1. huge investment leads to higher levels of attention at board level which mean that the focus on adoption has top level support, where a smaller investment would not gather such focus.
2. The system selection is part of a huge organizational shift, based around a particular technology stack or solution focus
3. A significant change that fundamentally affects the workforce – of the type “automating this activity will reduce our administration staff by half” and needs a big change program to bring it about
Circumstances where people lie:
1. Make this investment, and you will save your company a gazillion dollars and be a hero
2. My career will advance better if I roll out this specific technology stack
3. the vendor provides pre-built ROI materials, where justifying something else means more work for me
4. Not wanting to stick my neck out or do something unpredictable.
5. Lack of knowledge of SaaS alternatives, or no real awareness of how to measure ROI on something without an investment
Real scenarios, where the return is better for non-SaaS:
1. The SaaS alternative is not yet available, not yet perceived to be available,
2. SaaS is not achievable, such as with physical operations, like factory floor terminals/warehouse gate systems.
What do you think?
Thanks to @drjerryasmith question yesterday “do you have any thoughts regarding the details of SaaS-based ROI?” until which I had never thought about writing this down.
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Comments
SaaS seems to throw the whole concept of ROI out of the window as there is no I to get an R on.
I think this is one of the reasons that SaaS adoption might be more prevalent than “official” statistics show it to be in the mid-market space.
My company (KashFlow, leading UK SaaS accounting) works primarily with the tiny companies and startups. But I was talking to someone the other day who targets bigger firms with their SaaS CRM solution.
He was saying a lot of his customers use his CRM at a departmental level. The higher-ups in the firm know nothing about it as the amount of money involved is so small that it doesn’t need sign-off like it would for a larger capital expenditure to buy software outright.
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There can be some FUD (Fear, Uncertainty, Doubt) over SaaS solutions, but I think we need a caveat or two here – we need to be talking about _good_ SaaS solutions in order to argue that they are always better.
A SaaS solution that reduces my ability to reuse my data in new ways could ultimately have a high cost.
A SaaS solution that puts my data at more risk than it is exposed to in my own data centre could also ultimately have a high cost.
That said, the same concerns apply equally to locally installed systems. A locally installed solution could still lock my data in an arcane format that inhibits organisation-wide reporting (ever used MS-Exchange?).