How Much Does That Enterprise Supply Management Solution Really Cost, Part II?

In yesterday’s post, we asked how much an enterprise supply management solution really costs because the up-front license cost or annual subscription fee is only one part of the puzzle — and until the full puzzle is understood, it’s hard to figure out what the true cost is and, ultimately, what’s the right solution for the organization. The difficulty is the plethora of license models, and add-on fees, that have been invented by on-premise and SaaS/Cloud vendors over the years in an effort to get a leg-up on their competition (and a siphon into your corporate piggy bank). In today’s post, we’re going to review three proposals from three vendors, Siphon, Skimmer, and Drip. Then, we’re going to demonstrate how to compare them on equal footing.

Siphon is proposing an on-site enterprise solution with a perpetual license cost of 50K plus 100 per user, an implementation fee of 20K, an up front customization fee of 15K for reporting, 25% maintenance, and up-front training of 10K for administrators and 20K for users. It also requires a database, application server, and a middleware license — which have their own maintenance fees. It also requires (3) servers to host the product, space in the data centre, an administrator / developer to maintain the customizations, and a user support person.

Skimmer is proposing a hosted ASP solution with a perpetual license cost of 50K, an additional fee of 50 per user, an additional fee of 1K per integration, and a small transaction fee of $1 per transaction. Maintenance is 10%, but the initial implementation cost is 40K, not counting the 20K for custom reporting or 20K for integration with external systems. User training is 20K up-front.

Drip wants to go pure multi-tenant SaaS for a hosting fee of 40K a year, with 30K up front for implementation, 20K up front for custom reporting, 10K for external systems integration, and 20K up front for training. However, ongoing training, largely self-led, is minimal at 5K / year.

On the surface, Drip sounds expensive if you’re looking to make a 5-year commitment because it’s 200K in license fees, as opposed to 50K for Siphon and 50K for Skimmer, but Skimmer has over 100K in additional up front costs (bringing your down-payment to 150K) and Siphon has at least 75K of up front implementation costs (bringing the total to 125K) plus whatever it costs for the database, app server, and middleware.

The only way to really understand what the respective costs are is to build a detailed cost model that allows for an apples to oranges to pears comparison that allows for similar elements to be compared on an equal footing when possible, and total cost to be understood.

To this end, you need to build a cost matrix similar to the one below (which is contained in this free cost model spreadsheet [that you can use at your own risk*]) so that you can determine the true cost of the solution over the time-span you expect to use it. (Be it the 1, 3, 5, 7, and 10 year time-frames pre-calculated, or some other time-frame). Then fill in the gaps.

For starters, with respect to Siphon’s proposal, we have to cost out the database, application server, and middleware. When we do that, we find that the db license is 15K plus 30% annual maintenance, the application server is 10K plus 25% maintenance, and the middleware server is 20K plus 20% maintenance. Plus, we need to buy 3 servers to support it — one for the application and middleware, one for the database, and one for the web application server. Digging deeper, we find out that it needs five custom module integrations, and each will cost 2K, tacking another 10K onto the proposal in addition to the 10K required to integrate with external systems. Digging into the support requirements, it’s going to require 50% of an admin’s time, and that person costs 90K a year, and 100% of a support rep’s time, and that person costs 60K a year. The servers will consume about 6K of power, an additional 3K of backup services will be required, and the annual maintenance on the database, middleware, and app server will cost 5K, in addition to 5K of annual training to keep the admin up to date.

Skimmer, being a hosted ASP solution, also requires an annual hosting fee of 20K for data centre costs in addition to the 50K perpetual license cost, and an additional fee of 10K in each subsequent year for training.

Drip, being a pure multi-tenant SaaS, has no other costs.

When we put it all together, we end up with the table below:

On-Premisee Hosted ASPP SaaS
Perpetual License (K)
Flat Fee 50 50 0
Per User 0.1   0
# Users 100   0
Per Module 0   0
# Modules 5   0
Per Integration 2   0
# Integrations 5   0
Per Server 0   0
# Servers 3   0
Total 70 50 0
Annual Hosting Fee (K)
Base Fee 0 20 40
Per User 0 0.05  
# Users 0 100  
Per Module 0 0  
# Modules 0 5  
Per Integration 0 1  
# Integrations 0 5  
Per CPU Hours 0 0  
# CPUs 0 0  
Per Transaction 0 0.001  
# Transactions 0 300  
Total 0 30.3 40
Maintenance % (0-1) 0.25 0.1 0
Equipment Up Front
Server Count 3 0 0
Server Cost (K) 8 0 0
Server Life-Span (Yrs) 3 0 0
Total 24 0 0
Mandatory Software
Perpetual DB License (K) 15 0 0
DB Maintenance % 0.3 0 0
Perpetual App Srvr License (K) 10 0 0
App Srvr Maintenance % 0.25 0 0
Perpetual Middleware License (K) 20 0 0
Middleware Srvr Maintenance % 0.2 0 0
Total Software (K) 45 0 0
Total Maintenance (K) 11 0 0
Implementation Cost (K) 20 40 30
Ext. Sys. Integration (K) 10 20 10
Custom Report Development (K) 15 20 20
Upfront User Training (K) 20 20 20
Ongoing Training (Yearly) (K) 10 10 5
Data Center Costs
Admins/Developers Rqrd 0.5 0 0
Annual Salary (K) 90 0 0
Support Reps 1 0 0
Annual Salary (K) 60 0 0
Power (K) 6 0 0
Integrated Systems Maintenance (K) 5 0 0
Backup Fees (K) 3 0 0
Ongoing IT Support Training (K) 5 0 0
Total 124 0 0

And then when we summarize the costs, breaking them down into first year and subsequent year, we get the following summaries:

First Year Costs
On-Premise Hosted ASP SaaS
Perpetual License 70 50 0
Equipment (Computer) 24 0 0
Mandatory Software 45 0 0
Base Implementation 20 40 30
Ext. Sys. Integration(s) 10 20 10
Custom Reporting 15 20 20
User Training 20 20 20
Year 1 Data Centre 124 0 0
Year 1 Hosting/Subscription 0 30.3 30
Total Up-Front 328 180 110
Ongoing Yearly Operating Costs On-Premise Hosted ASP SaaS
Hosting/Subscription 0 30.3 40
Maintenance Fees 17.5 5 0
Maintenance Fees
11 0 0
Equipment Upgrades 8 0 0
On-going Training 10 10 5
Data Centre Costs 124 0 0
Total Yearly 170.5 45.3 45

And then we quickly see that, in the first year, SaaS is the cheapest and On-Premise the most expensive and, more importantly, that going forward, On-Premise is considerably more expensive due to high data centre costs. We also see that, overall, SaaS will be the cheapest solution but this doesn’t mean it is the right solution as the cost of Hosted ASP and SaaS in subsequent years is almost the same, and if the Hosted ASP provider can offer substantially greater security and reliability with the single instance they are offering (as opposed to the multi-tenant SaaS solution), it might be worth the additional 70K up-front cost for the Hosted ASP solution — especially if the company is looking to commit for a longer term (like 5 years). Plus, With the costs so similar, a negotiation might be able to reduce the base implementation and integration costs, putting the Hosted ASP solution on par with the SaaS solution. However, none of this would be clear without this total cost calculation. So do your homework, and your detailed year-over-year costing, before selecting a solution. It will pay off.

* All warranties or representations, express or implied, are disclaimed and you take complete responsibility for the use, or misuse, of the template.