This is a question we hear many small business ask on a regular basis, and although the answers vary from customer to customer, the answer to “if you should”, is always a resounding yes.
The primary reason as to why though, is usually a purely fiscal scenario, centered around “total cost of ownership”. When looking at your current IT infrastructure, there’s a percentage that may have already moved to the cloud, and still some left in on-premises servers, switches, and firewalls. The first thought expressed to us is usually something to the affect “I already own my equipment, so why in the world would I want to move from paying for something once, to a monthly fee based structure that I don’t even really own”?
The answer isn’t easy, but it can be understood if broken down in terms of best practices and total cost of ownership. Best practices indicate that business infrastructure-level servers should be replaced on a five year depreciation cycle. This means if you’re using properly redundant equipment, geared to protect essential company data, you’re spending anywhere from 10k to 20k once every 5 years for servers alone. That leaves out costs for switch replacements, firewalls, and other mission critical hardware components your business relies on.
For argument sake, let’s say you have a business (10 employees) with a single server and modest hardware requirements (maybe 64GB RAM, and a small RAID array of maybe 2TB). This server would cost just around 3k new, and if following best practices, will be an investment made at least once every 5 years. In addition, this server needs reliable connectivity to the network, which means a new switch as well ($300-$500 for a lower level, quality switch). Between each hardware upgrade for this server, you’ll also be paying for a Microsoft Windows server license that costs at minimum $501 (MSRP for Windows Server 2022 Essentials) or a starting price of $1069 (MSRP for Windows Server 2022 Standard), depending on how many cores are included in the physical server. For this exercise, we’re going to say we’re using the least expensive solution at $501, which will satisfy the needs of a business with under 25 users. This includes shared files, “Line of Business” application services, and nothing else. Let’s tally up our 5 year total and include other items that would be offset when moving to cloud alternatives (in terms of other items, we’re referring to your end users, which speaking in best practices terms have a divestiture of 3 years for each device, but we’ll keep it simple and extend to 5 years for this exercise).
All prices were taken directly from standard, well-known providers and have actually been deflated to account for “special deals”
- $3,000 – Small server with 3TB RAID 5 (spinning hard disks), 32GB RAM, and 1 low-level processor (this is a deal. Retail is closer to $4,500).
- $501 – Windows Server 2022 Essentials for the server.
- $379 – 24 port Ubiquiti switch.
- $500 – Anti-virus protection, just for the server (add another for a really low estimate).
- $1000 – Entry-level firewall with basic protections.
- $1895 – Firewall maintenance (upgrade protection at $379 per year)
- $2000- Anti-virus for client devices, $45/device you have in the organization, with a steep discount and accounting for the non-factual scenario where each of your users has ONLY ONE device.
- $600 – Windows 11 Professional, 10 licenses at MSRP of $60/copy
- $1440 – 5 years of single-server backup directly to cloud ($24/month).
This brings your total IT infrastructure investment over a 5 year period to $11,315, which is a very low estimate and comes out to be $2,263 per year. This is the perfect scenario, and assumes you are maintaining all of these devices yourself, installing updates, upgrading, and heaven forbid something happens to one of these things during the 5 year depreciation cycle. In reality, this cost will be required to increase by at least $5,000 for an IT professional to properly install them, then a modest monthly fee to ensure they’re kept up to date. That means, assuming nothing fails and you only need to pay for initial installation services, your investment just grew to $16,000 for the 5 year plan you had. All this said, we all know I’m being kind here. Items fail all the time, and time is money. You will make the money appear to get mission critical services back up and running when the alternative means you are sacrificing the productivity and reputation of your organization.
Now that we’ve discussed the bare minimum installation and assumed that NO ISSUES will happen in a 5 year period that negatively affect production (as-if, lol), let’s discuss upkeep. This is called managed services or service calls, and most organizations that provide this service for on-premises equipment provide it either based on an hourly rate (in-person service), or a per-month cost to maintain the environment for you remotely. Hourly rates range anywhere from $100 per hour for an entry-level person to help with minor issues, and up to $250 per hour for a highly skilled IT engineer that can help with those complex issues that can and do arise. To pay an organization with regular maintenance, you will easily be changed $100 per month as a low figure. This includes just Operating System updates, monitoring of critical systems only, and MAYBE onboarding and offboarding of users. Additional fees will apply for anything above and beyond these items listed. So for those at home counting, we’re going to be generous and say this comes out to a very conservative $1,200 per year for basic maintenance. Let’s revisit our math for on-premises total cost of ownership.
- $11,315 – Total cost of critical hardware.
- $5,000 – Professional initial installation and configuration.
- $6,000 – Basic remote monitoring and maintenance (at $100 per month for 5 years)
Holy cow! now our total cost of ownership for this very modest, small scale solution has a 5 year cost of $22,315. This is assuming absolutely nothing goes wrong with your critical equipment during a full 5 year period. What happens if the server crashes? What happens if you’re business is attacked? What happens if you have a total loss? I hope none of you ever have to experience these conditions, but the truth of the matter is that it happens all the time. The odds of this being your total investment costs are miniscule and are in reality going to cost much more over this period due to the myriad of unforeseen issues that can and do occur regularly. If you are a business owner, you know what I’m talking about. Risk is an absolute calculation and has not even been considered into this fictitious scenario in order to provide raw costs as a comparison to cloud computing as an alternative.
Now, let’s talk about moving your organization to the cloud. Again, we’re supposing your company has 10 employees.
A “Microsoft 365 Business Premium” license for a single user costs $22 per month. For 10 employees, this costs you $220 per month, or $2,640 per year, or $13,200 for a 5 year depreciation cycle comparison of on-premises infrastructure. For the sake of this article, we’re using small business managed service cost from CustOS Engineering, which is $450 per month (or $5,400 per year, or $27,000 for 5 years) that includes the following:
- Microsoft 365 Business Premium licensing for all users in the organization.
- Microsoft Windows 11 licensing for all devices a user has access to, not limited to the number of users in the organization. Working smarter.
- NOT INCLUDED WITH ON-PREMISES CALCULATION – Premium support with Microsoft (this is usually reserved for Enterprise organizations at a starting price of $50,000 per year).
- NOT INCLUDED WITH ON-PREMISES CALCULATION – Microsoft Endpoint Manager (manage all devices in your organization, including policies, applications and MUCH more).
- Microsoft Defender for Endpoint (replaces the need for 3rd party anti-virus by using an industry-leading protection platform). As a note, this also includes management of iPhones, iPads, Androids, and Macs as well.
- Microsoft Defender for Office 365 (protects all data stored in the cloud).
- NOT INCLUDED WITH ON-PREMISES CALCULATION – Microsoft Office 365 (up-to-date Microsoft Office for the duration of your license period).
- NOT INCLUDED WITH ON-PREMISES CALCULATION – Centralized end-user device encryption
- NOT INCLUDED WITH ON-PREMISES CALCULATION – Over 60 other premium product features that you need to properly secure and maintain a forward-thinking business.
In summation, at a bare minimum it will cost $22,315 to host your own equipment with little protection from catastrophic events, bare minimum cyber security, no accountability (due to legacy equipment and operating system design, without additional investment), no access to company resources unless you’re at the office (or using a VPN, which will cost you extra), and you just have to go through this whole exercise again in 5 years. You’ll be re-living this same calculation at a bare minimum of every 5 years, and I don’t know about you (I can guess pretty close though), but I hope you increase your business substantially over a 5 year period, which increases your on-premises investment dramatically due to increased reliance on properly configured and always up requirements. Not to mention all the new licenses and increased costs of hardware over the depreciation period.
Wait…I forgot about industry regulatory requirements! Just kidding. I always think about this topic, but will spare the conversation for another article. Suffice it to say this is a topic near and dear to anyone handling customer information of any type, and was not in any way addressed in the cost calculations related to on-premises equipment. It is however included in the cloud cost, without extra effort and applicable to your industry, regardless of what that may be.
With CustOS Engineering small business managed service, the decision is clear. While the “best case scenario” cost is just lower than a full cloud solution at first glance, the cloud solution is a clear winner in all areas of concern. From data protection, to security and software costs. From paying for experts to help in your journey and having professionals that act as part of your organization, the cost of moving to the cloud is well worth it and shows that you’re a savvy investor that thinks about all aspects of the organization, with special attention to the details and values within.
This scenario and these costs (at least for on-premises) are completely fictitious, but this discussion is very real and should happen regularly in your organization. The experts at CustOS Engineering have had this conversation with thousands of satisfied customers and would love the chance to help you on your path to smart investing in IT. If this resonates with you, please contact us today for a personal discussion about your own business so we can attach real numbers and help with the decision making process. Thanks for reading!
