In this post, we’ll cover:
· What is TCO [Total Cost of Ownership] from a SaaS perspective?
· Why is TCO important for ICM [Incentive Compensation Management] Systems?
· How to calculate TCO for ICM Systems
What is TCO [Total Cost of Ownership] from a SaaS perspective?
The first consideration is the estimated duration of how long the new SaaS software purchase will exist within your business. Then you need to consider the different dimensions to assess the costs on. In terms of SaaS, there are certain elements we do not need to consider such as hardware considerations so this can simplify the assessment to some degree.
The key SaaS cost dimensions to consider areas follows:
- Software License fees: what are the annual license fees? Are you factoring in the cost of growth of users over time? Are there any additional licenses that youwill need that are not mentioned in the initial quote?
- Software Support fees: are there any support fees required at an additional cost to your license fees? Do these increase over time?
- Implementation fees: the initial implementation fees and then follow-on post-implementation fees for future changes etc.? Does the vendor have a change request process, or do they provide advisory services instead that allow you to draw down hours over time? Do you need to use a 3rd party to implement, which may increase the costs even further?
- Security Costs: does the new solution reside within your existing security model [thereby minimizing any additional IT costs] or does this software come with a new additional security model to learn and manage?
- Training Costs: How self-service is the software? Is there much training required? How does the vendor approach the fees around this?
- Data Migration Costs: Does the data reside already within your existing data models, or do you need a new data migration project to support this new software implementation?
- Backup Costs: How much will the cost of backing up the data for the new solution cost? Will it increase over time? Willit work within your existing backup software licenses?
Why is TCO important for ICM [Incentive Compensation Management] Systems?
Assessing TCO is important from an ICM system perspective to ensure there are no hidden costs when you are comparing vendor offerings, ensuring you receive the best value for money with these types of solutions. Considering the costs over more than one year is vital [this also may help with discount discussions as vendors will typically be more open to better discount rates over multi-year contracts].
- Do I need to pay for support fees?
- Are the support fees only a percentage of licenses or is it a percentage of licenses & implementation fees?
Also, In the ICM space, there can be quite alot of consultancy fees connected with the implementation, that may not be as transparent as initially considered. Does this exercise also help keep the vendors in check and transparent?Absolutely.
How to calculate TCO for ICM Systems
To help demonstrate how we’d assess the TCO for two sample ICM vendors, we’ll run through an example calculation.
To set the scene, the customer has approx. 100 employees who are paid commissions monthly in the business, across 3 regions. The company is growing 20% year on year, so we’ll assume the same for license usage growth. Costs are based in US dollars, excluding taxes.
Vendor Comparison
When you compare the costs of the two vendors over a 3-year period, Vendor A is 35% more cost effective than Vendor B.
Vendor A has a discounted license of $30 pupm; Vendor B has a discounted license of $60 pupm. Vendor A has onboarding fees with support included and advisory services provided for inyears 2 and 3; Vendor B has a consultancy project approach with additional support fees per annum [30% of license fees] and additional change request fees for year 2 and year 3.
Bringing It All Together
So we’ve covered Total Cost of Ownership from our Incentive Compensation Management experience at Leaptree, but costs are only one part of the puzzle. The benefits need to outweigh the costs. When you run your Cost Benefit Analysis, do the benefits tangibly cover the costs of your deployment over a 3-year period and then some? This can really help sell the project internally – the higher the cost outlay – the more difficulty you’ll have selling this initiative to your decision makers. On a positive note, if the numbers add up with the right vendor you’ll be on the right path!
To learn more why not talk to our revenue team? Schedule a call at a time that suits you and we can learn more about your organizations needs.
Author
Neil Young
Neil is the Co-founder & CEO of Leaptree Neil has over 30 years experience working within the technology landscape, with the last 12+ years focused on building up and running SaaS companies. Neil has leaned in on his RevOps experience building up Sales, Marketing and Customer Success teams, taking these learnings into establishing Leaptree as a global player in the RevOps software industry.