Is a SaaS business software solution actually more expensive?

At first glance a SaaS business software solution seems like a much better option for any organisation looking to upgrade to a mid-market ERP solution. A SaaS solution allows you to pay a much smaller up front fee and ongoing monthly payments, or a straight monthly payment from day one.

A SaaS solution seems to allow you to implement an organisation-wide solution, without the need of hardware investment or the intervention of an IT department. And best of all a SaaS solution appears to be much easier on your cash flow. In fact, at first appearance a SaaS business software solution seems to be the ideal way of funding an upgrade to a mid-market ERP solution but like most things that seem to good to be true, these solutions are not always what they first appear to be.

Out of the box vs. customised solution

The reality is that any mid-market ERP solution that you purchase will require a fair degree of customisation to fit the needs of your organisation. Research indicates that this customization can range between 1-6 times the costs of the original software. Because many SaaS solutions are designed as a ‘one size fits all’ solution with DIY implementation, the degree of customisation is can be very limited. This is one of the ways in which they keep the costs of initial implementation low. The reality is that a mid-market solution that helps you reduce your operating costs, create greater efficiencies and provide better people, operational and business intelligence needs customisation to achieve these goals. There is no short cut to meeting with your people, reviewing existing practices and developing specialised workflows, forms and streamlined process. This often requires face-to-face engagement, something that SaaS solutions try to steer you away from.

DIY vs. expert Implementation

It’s naive to believe that your people can independently implement a sophisticated mid-market ERP solution as effectively as the professions who do it for a living. Experts who work with these solutions have the project management capabilities to review current business practices and identify challenges and opportunities with implementation. They also have a real understanding of the strengths and weakness of out of the out-of-the-box solutions and know the real time and costs of adapting a solution to perform at an optimum level. No matter how talented your people, a DIY SaaS solution is never going to be as good as a solution designed and implemented by experts, specifically to meet your needs.

Renting vs. owning your license

This is the lure of a SaaS solution.  Let’s be honest, a mid-market ERP solution is a large investment and if a SaaS mid-market ERP solution allows you to benefit today and amortize your costs over the long term, it appears to be the right way to go. Right? Not necessarily. You need to look at what you’re committing to.  With a SaaS solution you’re renting the license and the server space but you never own it. The moment you stop paying the monthly fee is the moment you loose access.

This is not a problem if you only intend to use the solution for only 12 months, but if you’re like the majority of organisations who commit to a mid-market ERP solution for 10 years, then the compound cost of the SaaS solution stops making sense within the first few years and you end up paying much, much more over the lifetime of the solution.

Today’s costs vs. the cost over the lifetime of a solution

The compound cost of most SaaS mid-market ERP solutions over the lifetime of a solution can be staggering and at the end of the process, you don’t own the license. To add insult to injury, if you want to retrieve your data (which of course you do), there is often a substantial penalty payment. Yes you pay less from day one, but like financing your entire business on a credit card, the real costs will catch up with you at some point. There is also the other question about increasing costs of cloud storage, as your data requirements expand.

Help desk support vs. field support

One way that SaaS mid-market ERP solution providers keep their costs down is with what they euphemistically refer to as an online ‘help desk.’ Let’s be clear here, these ‘help desks’ are rarely locally run operations and the lag between sending a help request to a help desk on the other side of the world (operating in different time zones) and receiving a response can take considerable time. This can result in your entire organisation sitting, twiddling their thumbs waiting for access to essential systems and processes.

Alternatively, a locally implemented solution, by professionals who you have a personal relationship with, can provide a much more timely response. And if this response is from the same team that implemented your solution, they will also have an understanding of your custom designed solution.

In-house vs. cloud data integrity

If you believe the literature provided by SaaS mid-market ERP solution providers, your data in the cloud has the protection of something the equivalent to Fort Knox. For those of us who still read the paper, we understand that cloud based solutions are not immune to hacking. It seems that the larger the server farm housing the cloud solution, the bigger target it makes for malicious hacking.

Additionally, there is the specter of ‘big data’ collection from cloud-based solutions. With any cloud based SaaS solution, you may be signing on to data experiment, where your data becomes part of a larger pool of data that becomes a ‘big data’ offering, to be sold on to other organisations. If you host your own solution, on your own server, you can stay under the radar and you maintain absolute control of your data integrity.

The last word on SaaS mid-market ERP solutions

At the moment SaaS software solutions are the ‘flavour of the month’ and in many cases SaaS solutions, such as Drop Box and Digital Asset Management solutions fill a need in the market. However (as it stands at the moment) it may be premature to climb onto the mid-market ERP SaaS solution bandwagon.

The superficiality of SaaS customisation (e.g. changing colours and fonts) appears to be camouflage for the lack of real flexibility in customisation.

The same may be true for the lack of essential support services, which are a poor substitute for a real relationship with the vendor. 

And let’s not forget the ‘elephant in the room’, which is the accumulative and inflated costs over the lifetime of the solution. 

Maybe the real questions you need to be asking yourself is “why did I want to upgrade to a mid-market ERP solution in the first place?” and “what can I achieve with a mid-market ERP solution, customised to my organisations individual needs?” If these questions are your start points, then the answers become more about ROI and not “how can I make this as cheap as possible today?” That sort of short-term thinking leads to long term, undesirable consequences.