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Cost Element Structure

The figure below shows cost elements associated with a typical SaaS selection and deployment. "Vanilla" or "out of the box" deployments, using the configurable solution permutations made available by the SaaS provider, can be much more cost effective from the outset. Implementation time and costs can be driven upward however with additional customizations and integrations with on-premise systems. Costs for change management, training, and end user support which is shared with the SaaS provider can be expected to be the same or less compared to on-premise software.

SaaS Cost Structure identifying elements that comprise the Strategic Planning Costs, the Implementation Costs, and the Recurring Annual Costs while identifying who's responsible for those decisions and costs at each stage of the process from Strategic Planning to implementation, finally ending with recurring annual costs

Recurring annual costs are largely administrative since the SaaS provider automatically updates software and there is no hosting hardware to maintain. The cost avoidance for software upgrades alone is illustrated below. To be able to maintain state-of-the-industry software functionality over time with predictable SaaS subscription fees offers clear advantages to IT budgeting for applications that can be served with SaaS. Recurring SaaS costs also can be driven upward however when a customer organization seeks to expand functionality and/or number of users, further customize its SaaS solution, or integrate it with on-premise software to increase usage and value within the enterprise.

Graph showing five-year costs associated with on-premise software, both with upgrading and without upgrading, compared to SaaS which include upgrades in subscription price. SaaS cost is a horizontal line while on-premise software without upgrade costs is represented as a descending line and a 'V' with upgrade costs, indicating SaaS costs less