Whether you go with hosted or on-premise CRM software is down to your preferences and business requirements: what you're aiming to achieve, your objectives, resources, and what you need your CRM to do for your organisation.
With hosted CRM (often referred to as ‘Software as a Service', CRM ‘on-demand' or ‘in the cloud'), the application and data within it is held on secure servers kept in a remote data-centre. This means your software hosting provider takes care of the running and maintenance of the software and servers.
Hosted CRM software tends to be a good fit for small businesses because it can be up and running with ‘out of the box' functionality very quickly. Your own staff and users won't need detailed technical knowledge or development skills (although they will need training to use the product effectively). And arguably the main attraction of hosted CRM to small businesses is that there's generally little or no financial outlay in terms of hardware and IT infrastructure, certainly at the start of the project. Costs are also straightforward - you pick your level of service, sign up and pay a monthly fee per user.
However, if you have more complex business processes and so need quite a bit of software configuration, if you already have your own servers (which is often the case if you have your own email or are also using an on-premise accounting or ERP application), or if you want to own your system completely, then deploying a CRM system in-house/on-premise is probably your best option. Return on investment is also an important consideration. Done right, CRM is a long-term business strategy and the money spent on hardware for an on-premise CRM solution will usually be regained fairly quickly, typically within 24-36 months
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