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  • What Is The Total Cost of Ownership - Cloud Vs On-premise?


Many companies look to ERP software to improve their business processes and internal operations to enhance performance and as a result, achieve a significant return on investment. When it comes to deciding to implement ERP software, one of the main considerations is the debate between deploying in the cloud or on-premise.

Whether on-premise or cloud, the total cost of ownership is rarely understood which often leads to companies only realising the true cost after implementation.

What is on-premise deployment?

On-premise software refers to software installed on-site – usually on business premises where the software is used. The business is responsible for upkeep and maintenance, often managed by a dedicated IT team or outsourced to a third-party vendor. 

What is cloud deployment?

Cloud software is hosted in the cloud by an external provider, usually through a data centre such as Microsoft Azure. There are several cloud environments including public, private and hybrid cloud. With cloud hosting, users can access the software at any time and place, via an access device (for example, a computer, laptop or mobile phone), requiring just an internet connection.

Cloud vs on premise cost comparison for ERP software deployment

The total cost of ownership can vary depending on the type of deployment you choose. We look at the cloud vs on-premise pros and cons for ERP software, including the cost of implementation, security, control and maintenance.

Cloud costs vs on-premise costs: Cost of ownership

On Premise

On-premise ERP solutions usually have a much higher initial cost for businesses such as one-off licence fees, hardware, running costs, maintenance and hosting. Choosing an on-premise ERP solution could mean unpredictable spending, such as updates, modifications to the system and support throughout the contract. Implementing the system on-site at your business location and training users to utilise the system correctly can also come at an additional cost.

Installing software on-premise requires a range of equipment and hardware such as the servers to run the software and associated machines or workstations to manage them, as well as any additional cabling and components needed to complete the hardware install.

When opting for on-premise, it’s also important to remember the lifespan of hardware and its subsequent replacement cost. Plus, when replacement is needed, there would also an associated upgrade cost to move your system to the new hardware.

In addition to the hardware, all users will require a licence. Depending on the size of your organisation, the cost of licencing can differ greatly - a company with 1000 users will require significantly more investment for user licences than an SME with 100 users.


Many businesses are moving to the cloud due to the range of benefits cloud-based software provides, and when doing a comparison, often lower costs are associated with its implementation.

The cost of cloud-based ERP software usually comes as a subscription, billed monthly or sometimes annually, and provides your business with ongoing maintenance and support throughout the contract. This cloud SaaS model not only helps you to predict your spending more accurately but also helps to keep initial costs down due to the implementation being cheaper. 

Cloud installation would require your business to have an internet connection and hardware which enables your users to access the software application, for example, mobile devices, laptops, or computers, depending on their needs.

Even for cloud-based software, users still require a licence. With a cloud-based subscription, you can scale these up and down as required.

When comparing cloud costs vs on premise costs, it's clear that requiring minimal equipment reduces both the running expenses and the initial investment to put technology in place.