The Hidden Savings of Hosted CRM

Updated: September 16, 2008

Issue

 

One of the major questions surrounding hosted CRM, or CRM as SaaS (Software as a Service), is an economic one: Do hosted CRM solutions from vendors like SugarCRM and Zoho save you money?

First, of course, the answer depends on your particular circumstances. You need to carefully compare costs — both open and hidden — before choosing between a hosted or on-site solution. "[Hosted CRM] is not a silver bullet and it's not a panacea," said Martin Schneider, direct of product marketing at SugarCRM. According to Schneider, that's why SugarCRM offers an on-premise version of SugarCRM as well as its better-known hosted version.

Still, Schneider noted that there are many economic benefits to hosted CRM. They include savings in hardware, installation, support and personnel, as well as some less obvious ones.

 

Analysis

 

It's a truism in IT that expertise costs money. The more bases you have to cover, the more expensive it will be. This goes double for expertise in a hot field like CRM and triple for a small department where your CRM expert also has to serve as database administrator or some other critical role.

As a result, Schneider said, a company can easily end up paying a six-figure salary to its key IT person. Hosted CRM can help keep these costs down.

 

Hardware, Software Costs

 

CRM systems cost more than just the price of the software. "People tend to look at the price of the CRM software alone," said Raju Vegesna, an evangelist for Zoho, a hosted CRM company and a division of Adventnet Inc . "The other parts — the operating system it is using, the database it is running on, the hardware costs — they don't see them." The reason they don't see them, Vegesna said, is because those costs are picked up by the IT department, not the sales or marketing departments.

As a result, Vegesna said, "You pay for the application and all the other costs can be ignored." According to Vegesna, this is important because the cost of CRM software will typically be between 20 and 30 percent of the overall IT cost.

Because of the way these additional costs are hidden in a large organization, small companies tend to see the value proposition of hosted CRM much more clearly. If you don't have a corporate IT department to pick up the expenses of additional operating-system and application licenses, or to handle maintenance, the advantages of hosted CRM are much more visible. According to Vegesna, this is one of the reasons that SMBs (small- to medium-size businesses) are quicker to adopt the hosted model.

 

Excess Capacity

 

Hardware is modular, but your needs for CRM aren't. In other words, you can only increase the capacity of your servers, disk drives and other infrastructure in discrete chunks. However, the demands your CRM system puts on hardware varies.

This produces a classic IT dilemma: Do you purchase the capacity that's going to be most economical in the long run, or do you get what you need now and plan on upgrading later? Buying for long-term economy tends to leave you with excess capacity most of the time. Sometimes it's a lot of excess capacity, but it has to be paid for whether or not you're using it. Buying in smaller increments is more expensive in the long run and means that you're constantly purchasing additional hardware.

With hosted CRM, you can vary your capacity demands much more smoothly. You don't have to add capacity until you actually need it, and then the scaling-up process consists of a phone call to the vendor.

 

Upgrades and Patches

 

Normally SaaS systems are automatically maintained by the vendor at no added charge to the customer. While most CRM vendors supply patches and minor upgrades for free, they often charge for major upgrades. Since the customer has no control over when the vendor is going to release a new version, this is a cost that is paid on the vendor's schedule, not yours.

The other advantage is that patches and upgrades are applied automatically. You don't have to worry about making sure you've got the latest revision, tracking patch numbers and other maintenance chores. This saves money by reducing the load on your IT department.

One other result of the different economics of hosted and on-site CRM, Vegesna said, is that the monthly fee for hosted CRM software will often be less than the monthly cost of support for an on-site system.

 

Outlay Pattern

 

One of the more subtle cost discrepancies between hosted and on-premise CRM results from the different pattern of outlay for each approach. An on-premise CRM system has a much higher up-front cost as you invest in hardware and software as well as in setting up the system. A hosted solution has set-up costs as well, but for the most part your investment consists of a monthly hosting fee.

Even if the hosted CRM application does not represent a savings when costs are compared over the long term, it makes a considerable difference when it comes to writing the checks each month and matching outlay to income.

 

Time to ROI

 

While deploying a full CRM system is a complex process that requires considerable planning, the time needed to actually implement the software and start reaping its benefits is typically much less with a hosted CRM system. "If you make the decision on SaaS on Friday, you can probably have something to work with by Monday," Schneider said. This is especially true for SMBs that don't need elaborate customization of their CRM systems.

 

The Bottom Line

 

When comparing costs of hosted and on-premise CRM, these hidden savings can mount up. They can even tip the balance in favor of hosted CRM when overall economics are considered — as they should be when choosing a CRM solution.

For more information on CRM software, please consult the Compare Business Products CRM Comparison Chart.

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