The total cost of ownership (TCO), is a financial estimate used in business to identify the direct and indirect costs of a product, system, or service. It’s a way for nonprofits to assess risk, understand the cost of something beyond the ‘sticker price’, and how it compares to an alternative solution or product.
If you want to read more on how to calculate TCO, check out this awesome breakdown by Business Case Analysis.
In the case of technology, and more specifically, on-premise hosting and computing options, the typical lifespan of a system is 3-5 years. Here, the total cost of ownership includes hardware, software, and migration costs. You might be wondering where all the ancillary costs are. You shouldn’t include external costs like power, physical security, cooling, and Internet connections, because these can vary wildly month to month. Although, when these factors are considered, the TCO increases by an even greater amount.
What you might now be wondering is, why if external costs like physical security and cooling are not included in the TCO, why is the TCO for a cloud based computing solution less than an on-premise solution?
Here’s a quick break down and comparison of the two options based on an assumed organization sporting 1 terabyte of data storage, 81 mailboxes, and 4 virtual machines consisting of 22GB of ram and 5 CPUs developed by eXos Cloud:
When initially investing in an on-premise computing solution, you’re typically looking at a much greater initial investment compared to the cloud. However, your expenditures may be significantly less in the years following that initial investment, the TCO will still be much higher. Your organization could be looking at as much as a $99,000 initial investment, but spending a comparatively small $6,000 in the following months.
It’s in years 4-6 that the costs incurred by on-premise solutions creeps up again. renewing warranties on equipment, updating software, and updating security is where the costs of on-premise computing solutions start to add up. These costs, according to Firch’s model, could cost as much as your initial investment.
Similar to the on-premise solution, there will be an initial investment in a cloud computing solution that’s slightly higher than your yearly rate after that, although it is typically much lower.
While cloud payments are more often they’re typically occurring monthly in the form of what can be described as a subscription fee. the beauty of these payments is they’re, in most cases, a “pay for what you use” sliding scale. For example, if your nonprofit is far more busy during the holiday months of October - December, as most nonprofit organizations are, your payments will reflect that increased use. That cost will, in most cases however, be offset by your decreased use in the slower season.
According to eXos’s six year model, your nonprofit can expect to pay between $20,000 - $28,000 per year, depending on your usage.
Ultimately, according to eXos’s findings, over a six year period an organization can expect to spend somewhere in the neighborhood of $231,384 on an on-premise computing solution. Contrast that with the modeled cloud solution of $176,810, and you can expect to pay upwards of $54,574 less for a comparable cloud computing system.
What could your nonprofit do with an extra $54,574 each year?