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Cloud vs On-Premises Software: Comparing the Costs and Benefits Most technology providers have transitioned to offering software-as-a-service (SaaS) or cloud solutions. On-premises software (also commonly referred to as on-prem or on-premise software) delivers a similar service but is licensed software deployed on servers in the customer’s data center or on end-user computers. Cloud providers schedule and notify their customers regarding periodic updates or updates occur seamlessly at no additional cost or as part of a support contract (see above).On-premises IT teams juggle the myriad of application updates (typically included in the support contract) and sometimes need access to all end-user clients to execute at the cost of labor, although this is more commonly automated and virtual. Many SaaS applications include the most current version, easy to follow user interfaces, and delivery from multiple data centers to reduce the latency caused by the distance between the application, the data, and the end user (see data gravity).

If we study the activities of the high-performing 20% and their highest value tasks, across TFP’s client base the findings tend to be uniform with a keen focus on “consultative selling. What if technology vendors examined these high-value activities of their top performers and focused their sales enablement efforts on education and training of the entire sales organization to mimic these specific activities and sales motions? For example, one high-value task is the ability to identify, quantify and articulate the key value propositions of a technology solution and the impact in terms that resonate with the customer at the c-Level? We find that the rule can be challenged by technology vendors who have a keen understanding of their sales teams’ high-value skills and provide access to financial subject matter experts for the non-core skills.

Net present value (NPV) converts the multi-year benefits and costs of an investment into today’s dollars (or other currency value). We accomplish this by doing a discounted cash flow analysis, whereby the multi-year benefits minus costs are “discounted” with a “hurdle rate” to account for the time-value of money (i.e., a dollar today is worth more than a dollar in a year). For situations where it could make sense to use IRR, like when there’s a heavy upfront capital investment, an internal rate of return greater than the company’s hurdle rate is what makes the investment plausible. The NPV for the perpetual model is still higher than the subscription model, but only by $52.5K. Since the subscription model spreads costs over time, it reduces the negative impact of the higher five-year costs.

Regardless of the project (creating a business plan, solving a supply chain issue, investigating a technology acquisition or sale, etc.), by including a diverse set of coworkers, you will create a team  that can bring different insights and experience from all aspects of the company. While the field reps understood the need for long-term annuity revenue, their current compensation plan discouraged multi-year deals by rewarding the reps for one-year deals only. By including your financing team, finance can work the product management to establish a marketing-funded program around special payment terms (three month deferral, ramped payments, etc.). In summary, when preparing a product promotion, marketing campaign, or focused sales play, be sure to involve a cross-functional team the includes finance.