by John Hoebler

How much should a new cloud financial management system cost?

Aug 17, 2015
CIOCloud ComputingEnterprise Applications

With many companies moving their financial management to the cloud, there are many questions around what the cloud solutions cost and how they are 'priced' compared to traditional on-premise solutions. To add to the confusion, legacy vendors are getting creative on how to keep their customers on their existing system or sole source convert them to their 'cloud' application. This article de-mystifies that process.

cost savings
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The majority of net new financial system implementations today are cloud or Software-as-a-Service (SaaS) financial management solutions. Organizations either outgrew their existing on-premise solution, realized that another upgrade was risky with little benefit and a lot of cost, or have recognized that modern cloud solutions offer many benefits over their existing inflexible 1990s era system.

As executives look to the cloud, they are being bombarded with mixed messages about how much these applications will cost. This is especially true with vendors who have an existing on-premise or hosted solution. They are offering “cloud” solutions that typically entail putting their on-premise application “in the cloud” and offering it to you as a single tenant solution. Although “cloud-like,” there are many differences between single tenant and multi-tenant cloud.   There is an easy way to tell the difference as outlined in this post.

These vendors are desperately trying to protect their revenue stream, so they offer their existing customers either:

  • A low initial subscription cost. They can make the subscription cost very low. However, this pricing is typically only for a short period of time. They want to play the “long game” knowing that most companies will stick with their financial system for 10+ years. They will raise subscription costs over time to match or exceed market rates.
  • A low total cost of entry. They can discount the implementation fees. Why would they do this? They do it because the long term revenue stream that they will receive over time will far outweigh the one-time implementation costs they absorb. You should always remember that you do not get something for nothing. You will pay for it in the out years.
  • Cloud credits. They may offer cloud credits, which are a percentage of your existing maintenance fees that can be applied for future cloud subscription costs. This is a great strategy for these vendors. They defend their maintenance revenue, while at the same time making you biased in the long run to their solution – even if it’s not the right solution for you.

The end result of these pricing strategies is that vendors are using their existing revenue streams to freeze out possible competition. For the CFOs and CIOs that need to look for a solution that will meet their needs over decades, they will want more choices, not less.

A strategy that CFOs and CIOs should deploy is to look at all of the market leaders. It may be that their existing vendor (along with the above pricing “incentives”) is indeed offering the best solution for them. However, they would be doing their company a disservice by not assessing all of their options. Therefore, CFOs and CIOs should select a solution based on the answers to these six questions:

  1. Which vendor offers the best technical architecture?
  2. Which vendor has the best solution now and the best long-term product roadmap that meets my needs?
  3. What solution offers the best Total Cost of Ownership (vs. just the Cost of Entry/Implementation) over a five to ten year period?
  4. Which vendor’s culture and customer service approach will provide me the best value over time?
  5. Which vendor can provide references from existing customers about their product and their experience of working with such vendor?
  6. What has my experience been with my existing vendor?

The reality is that the new solution you choose is a long-term commitment, similar to a marriage. You need to be with that company and product (or spouse!) for a long time. You want someone that can grow with you and be by your side during the good and bad times. Don’t make this long-term commitment without playing the field and finding the right match for you.