SaaS ROI, do we know the facts?

A constant back and forth around the saas topic is whether it provides a long term competitive cost/benefit alternative to on-premise offerings. Getting hard facts isn’t easy. The early take up of services like Salesforce.com for instance was predicated on ease of onboarding for services that customers want rather than attention to cost. Even so, the fact services like SFdC, Basecamp and, in recent times, the new accounting entrants, come in at cab fare pricing is clearly an attraction.

I recently asked Mark Davies, country manager with e-conomic to provide data points on this topic. He sent over two documents: one is a straight year one comparison between different offerings. The data is slightly out of date but provides a useful starting point. We know for example that Xero has recently aligned its prices to NZ$ exchange rates (see illustration below for e-conomic’s comparison)

One of the problems with this ‘bare bones’ comparison is that it gives a distorted picture. In year 1, saas is always likely to win but what about year 2…5? Here you have to look at the ongoing cost of maintaining on-premise versus the continuing saas fee. Direct software maintenance and support in on-premise environments usually runs 15-22% of the original software cost. Then there is server or PC costs. In e-conomic’s cost matrix the company claims £300 per month for outsourced IT support. I’d argue you’d likely have those costs anyway though you might want to allow something for dedicated machine costs.

Then there is training. The new breed of accounting software falls into two camps: an essential replacement for existing which will require considerable retraining and new versions that seek to eliminate or at least substantially reduce training costs. You can argue that the first category fall into Phil Wainewright’s so-SaaS definition but then the TCO/ROI equation isn’t that simple.

I’ve always argued that saas benefits are far deeper than a bare bones price comparison. Here, e-conomic comes up with a use case for Symbiotic Projects where it claims £100,00 annual savings from: “…the cost of local IT infrastructure (local server, software, connectivity etc), cost of training, and the cost of employing an IT manager, a full-time book keeper and an administrator (to manage timesheets.) None of these are required with the e-conomic solution.” Now we’re getting to it.

Saas offers alternative ways of refining the company business model to take advantage of savings with the potential of improving process. For instance, in email, Mark says: “London-based company that’s employed the services of a credit control specialist based in Krakow.  Because the London company uses e-conomic, the service provider in Krakow has access to what they need and has delivered a significant financial improvement.” Where does this take us?

Unlike on-premise offerings where you may want to undertake an RFP for internal fitness of purpose, saas offers a different way to manage the business. Having the ability to extend your reach so as to include customers, business partners and third party services should mean a much higher bang per buck. However, you’ve got to do your cost comparisons carefully and weigh the benefits reality in an appropriate manner. There are four more things to take into account:

• Most saas accounting solutions will not have the depth of functionality that an on-premise alterative offers. However, that depth may be bloat for your business.
• Saas providers have to earn their subscriptions on a day-to-day basis. It is therefore in their interests to continue enhancements that work with the minimum of disruption.
  
• Saas is still an immature business. You might for example lock in to a supplier that delivers all you want and then some but cannot ’switch off’ functionality you don’t need. That’s the offline equivalent of bloat and is just as bad.
• Understand what you are paying for. Salesforce.com for instance starts with baseline pricing and then offers any number of add-ons that can ramp the cost. Accounting vendors are not yet that sophisticated in their offerings so expect business models to change or, at the very least, evolve.

Finally – if anything saas has opened the door to greater transparency in the evaluation of products and services. Yes, it is more complicated to make the right comparisons but it does force the buyer to consider what they’re really trying to achieve from their technology use. That has to be a good thing.

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