On-Premise vs. Cloud Computing Services: Which is More Cost-Effective?


As a business owner, you recognize we are in the age of cloud computing, and data is the new currency. Now more than ever, how you manage data can drastically impact your company’s success. The reality is today’s data is increasingly complex. If you are like most, you may find it difficult to cost-effectively build, operate, manage and store all this data, server hardware and computing resources on-premise.

Cost savings is one of the primary reasons that so many businesses are starting to move to cloud computing from their traditional, on-premise IT systems. Let’s take a look at 5 financial drivers to consider when switching from a traditional server to a cloud IT services model:

  1. No investment in large, upfront capital expenditures
  2. Reduced software costs via upgrades included in monthly fees
  3. Lower IT personnel and support overhead
  4. Cost savings gained through greater efficiency and higher productivity
  5. Tax benefits

These key factors are detailed below to help you gain a better understanding of the cost savings that are achievable when switching your business from on-premise to cloud computing.

No investment in large upfront capital expenditures

By storing your data in the cloud, you no longer need to invest large upfront capital to run your network. When you move your business to the cloud IT services model, you can eliminate the need for servers and the physical space to house them. You also reduce costs for hardware, storage, redundant data centers, disaster recovery systems, power and cooling systems, backup systems, and electricity.

In the cloud IT services model, the costs to operate and maintain your network are included in a simple, pay-as-you-go monthly fee. Additionally, you will no longer face the heavy financial burden of performing company-wide upgrades. For instance, when the server and network infrastructure need to be upgraded, the cloud IT services provider is responsible for handling these – with no added cost to you.

How often have you had to purchase expensive hardware for your company, only to find out within 12-18 months that it is already out of date and needs to be upgraded again?

One of the value-adds of moving to a cloud solution is higher quality cloud servers and network hardware. For instance, you can typically purchase a good on-premise server for $10,000 - $15,000, whereas cloud server infrastructure can cost upwards of $100,000 (and frequently, considerably more). Because cloud IT solution providers cannot afford failure, they make huge investments in high-quality equipment. In addition, their environment is safe, secure, and highly redundant across multiple data centers.

Reduced software costs via upgrades included in monthly fees

On-premise costs for infrastructure software can add up fast, and the cloud eliminates the need for yet another upfront capital expenditure. Fewer expensive software upgrades equates to considerable savings over time. For example, with the cloud, you don’t need to worry about upgrading Windows Servers, SQL Servers, Middleware, SharePoint Servers, Citrix Servers, Application and Database Servers, or client licenses, etc.

These costs are typically folded into the monthly fees for the cloud model. Plus, as most manufacturers now include free software upgrades for applications hosted in the cloud, you simply purchase the subscription within your monthly cloud IT service fees. This means no more expensive software upgrades and no more disruption to worker productivity that can result from them.

Lower IT personnel and support overhead

One of the most significant cost-saving benefits of the cloud is reduced overhead for IT personnel and support. Recruiting, hiring and maintaining your own internal IT department to support your applications and infrastructure can be extremely expensive. Human costs and downtime are a major burden. Many of these costs are reduced when operating in the cloud, as the provider owns the costs associated with installing and maintaining the applications, infrastructure, and hardware.

Most importantly, with cloud-based computing, you gain 24x7x365 access to experienced technology and security experts that you may not ordinarily be able to attract or afford in an in-house IT department. For most businesses, this results in huge cost savings by eliminating the need for one or more full-time IT professionals. At a minimum, the cloud takes low value-added work off of your internal resources – freeing up your team to focus on functions that directly impact your bottom line.

Cost savings gained through greater efficiency and higher productivity

Cloud computing enables higher worker productivity because users can access the network from any device – anytime, and from anywhere with an internet connection. Put simply, greater access allows your team to get more done compared with systems that only allow login at the office during business hours.

The cloud enables us to leverage automated systems, which can eliminate time spent dealing with manual processes, resulting in increased productivity across your business. These productivity improvements can free up one or more additional full-time support staff to focus on more important business priorities.

Tax benefits of cloud computing

Just as companies lease equipment rather than buy it, business owners are now realizing the same benefits from cloud-based IT services vs. on-site IT. The IRS places limits on the amount a business can deduct for capital expenditures, but operational expenditures do not have such limits. As operating expenses (OpEx) have distinct advantages over capital expenditures (CapEx), finance departments are trending toward this investment approach. By outsourcing your cloud IT services expenses, you can reduce net income, resulting in a lower tax bill each year.

Reaping the cost savings of the cloud

The decision to make the switch from on-premise to the cloud may seem like a daunting task. By implementing the cloud IT services model, you will finally free yourself from expensive, worrisome on-premise systems. You’ll quickly start to see the benefits of this technology in making better business decisions, while maximizing profits and minimizing risks and overall costs. But don’t take my word for it, hear from other business owners just like you who have made the jump to the cloud.

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