How should CFOs calculate the TCO of SaaS software?

Grazed from TechTarget. Author: Hyoun Park.

The best way to look at the total cost of ownership (TCO) of a Software as a Service application is to consider the costs of the software, hardware, labor, consulting and training associated with the existing process compared to the SaaS application.

However, although SaaS applications typically have a lower TCO than on-premises applications due to the lack of hardware, maintenance and upgrade costs and to improved alignment between the application and the use case in question, chief financial officers (CFOs) should not use the TCO of a SaaS application as the key metric…

Instead, CFOs should consider SaaS software, like any business purchase, in terms of return on investment (ROI) and payback period. ROI is useful in that it takes a value-based approach that includes the SaaS application’s contribution to reducing operational costs, sunsetting obsolete equipment, reducing headcount, and supporting new and innovative business capabilities…

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