I’ve been involved in “ROI Selling” for many years and I have always felt that most people using it have been more involved in finding ways to use the term than understand it. Reductions in Total Cost of Operation are a much clearer indication of results and for most people easier to grasp than ROI.

And along with that, the terms CAPEX (Capital Expenditures) and OPEX (Operational Expenditure) have finally reached the lexicon of SaaS sales. When looking at a product that requires a capital investment in addition to maintenance against a product with a subscription or transactioal fee that can be handled as an expense - if the features balance out the SaaS app has a lot on the financial side to recommend it.

I totally agree! As an SaaS vendor, we’re doing our most to reduce our TOC - including but not limited to: making generic services that can be used across the entire stack as opposed to per customer basis [thus reducing our per-customer cost], improving our ability to see into our environment and figure out issues as they arise [through centralized logging and system monitoring] as well as automating deployments and upgrades [thus reducing person-hours per customer].

Having sold hosting, ASP, MSP and SaaS for nine years now, TCO and ROI have always been in the eye of the beholder. If a CIO is strategic, or the business unit owner of the software (HR dept for example) has more clout internally, then they are more likely to justify a vendor based TCO analysis or ROI business case. Otherwise, the long quagmire (no Family Guy pun intended) of comparing hardware, staff, data center costs and the like will always be reverse engineered to support the I.T. Director who has been tasked with “investigating” the potential cost savings of outsourcing. I have seen many extended sales cycles wasted on a TCO analysis, managed by I.T., which resulted in a reduction to the I.T. staff and “power base”. At the end of the day, a TCO or ROI analysis will only support the direction which decision makers want to take. Now, in today’s next generation of SaaS particularly around the Big 2 ERP vendors, I think your point is accurate. I.T. was probably the last “fan” of traditional on-premise investment but with escalating maintenance, snail paced high price upgrades, and viable alternatives entering the market, the decision makers can no longer support this way of doing business.