10 Factors that Impact UCaaS System Total Cost of Ownership

Tom Collins
Post by Tom Collins
October 17, 2017
10 Factors that Impact UCaaS System Total Cost of Ownership

Many IT professionals believe their organization is saving money by staying with on-premises phones instead of making the switch to Unified Communications as a Service (UCaaS). However, understanding the true total cost of ownership (TCO) for premise-based phones versus cloud solutions is more complex than monthly costs and implementation costs, or capital expenditures (CapEx). To understand how UCaaS could impact your organization, expanding your cost comparison to a TCO analysis is crucial.

In this blog post, we’ll explore how the CapEx of premises-based communication tools stacks up to the operational expenditures (OpEx) of UCaaS. Cloud-based Unified Communication tools are generally billed on a monthly basis at a flat, predictable rate that’s based on the number of users and features. While this monthly fee may appear slightly more costly than the initial hardware investment of a premises-based phone system, it’s not reflective of the true OpEx of both options.

10 Factors to Understand the TCO of a UCaaS System

1. Data center costs

Premises-based deployments require organizations to maintain all of the necessary data center infrastructure to support the communication tools. With UCaaS, the tools are hosted in the vendor’s data center. Factors that can impact the data center costs of a premises-based deployment include real estate, server hardware, virtualization, utilities, and 24/7, on-site staffing. It also includes maintenance, redundancy features, and business continuity planning.

In addition to these costs that can be calculated, organizations should consider the risk of keeping communication tools on-premises versus UCaaS. Few organizations can achieve the infrastructure redundancy necessary to provide a Tier IV data center environment on-site that guarantees at least 99.995% uptime.

Organizations that are required to comply with HIPAA, SOX or other regulatory requirements should also consider the significant cost of compliance in their TCO, which can also impact how data centers are staffed and secured from outside access.

2. IT staffing

With the tech talent shortage at peak levels, organizations may realize that bringing the talent on-board necessary to support a premises-based Unified Communications deployment is much pricier than believed. One recent study put the average cost of hiring a skilled engineer at upwards of $20,000 per hire due to a low supply of talent.

Not only do organizations need to hire individuals with the skills and experience, but they also need to ensure they have individuals with knowledge of all of the aspects necessary to maintain Unified Communications tools, which include data center management, deployment, maintenance, integration, QA testing, and staff training.

UCaaS provides organizations with instant access to the skills necessary for seamless Unified Communications, without having to hunt down highly sought-after engineers who are certified in VMWare. This enables organizations to maintain lean IT teams, since UCaaS implementation, maintenance, and testing is outsourced.

3. Business Agility & Implementation Speed

Premises-based deployments may not occur at the same speed as a UCaaS implementation spearheaded by an expert, certified vendor. The right vendor has the skills and experience necessary to plan a seamless multi-site implementation, while balancing your need for user training. Premises-based teams may not have the same agility to quickly implement new features as a UCaaS vendor, due to licensing procurement requirements, a need for testing, and other considerations.

UCaaS generally delivers value more quickly than a premises-based deployment, since there’s no need to procure licensing or hardware. It’s also a more agile solution over the lifetime of both options, providing organizations with the ability to scale features and functionality on-demand.

From Legacy PBX to UCaaS

4. Billing flexibility

The right UCaaS vendor can meet your organization’s requirements for billing, including customized agreements to bill your firm on a per-site or per-department basis. Clear, easy-to-understand bills that are defined according to your needs enable organizations to save significant time on accounting processes each month.

5. Cost of scaling

Organizations may need to purchase more capacity than necessary to add users to a premises-based Unified Communications deployment, including data center capacity, hardware capacity, and handsets. This can significantly increase costs of ownership in months where users are added, and create a necessity to pay for unneeded capacity.

UCaaS is billed on a per-user basis, and there’s no requirement to purchase unneeded capacity. The potential for saving money scaling your users up and down can be significant. Including scaling costs in a TCO is especially important for organizations that hire workers to meet seasonal demand, such as extra contact center staff for peak demand during the holiday season.

6. Software upgrade fees

Every time your organization upgrades the licensing of an on-premises solution, there will be an upgrade fee. Depending on the lifetime of your premises-based deployment, this could represent nearly-annual upgrades to your software. In contrast, UCaaS vendors pay for the cost of licensing upgrades, ensuring their customers always have access to the latest versioning within their predictable, monthly bill.

Depending on the software suite your organization is using, the licensing upgrades may also carry an issue of unneeded capacity and features. Many of the most common options for premises-based communication tools require customers to purchase bundled features, even if they don’t need everything offered in the package.

7. Software maintenance fees

Maintenance fees are common for premises-based PBX solutions that are purchased and billed either annually or monthly by PBX phone providers. These fees are often significant, and may increase significantly each time the contract is renewed. While it can be difficult to project how the costs of maintenance could change over your system lifetime, including the baseline can provide a more accurate depiction of TCO of premises-based Unified Communications tools.

8. Contract lock-in

Some premises-based PBX vendors offer incentives for their clients to be locked into their contracts, such as significant discounts on long-term, multi-year contracts. This can lead to several issues, including an organization finding themselves committed to using a PBX system that no longer meets their needs or uncertainty about how to proceed when a PBX phone company goes bankrupt. Breaking contracts when needed can also be a highly costly, time-intensive project.

By partnering with a UCaaS vendor that offers flexible billing, organizations can avoid the expensive possibility of being committed to a communication system that no longer meets their needs.

9. Proof-of-Concept testing

With any premises-based deployment of technology, there’s a distinct possibility that your organization will purchase hardware and applications, and find that the deployment just doesn’t meet your needs. Maybe it doesn’t meet your business requirements. Perhaps your users find it hard-to-use and are resisting adoption. Premises-based Unified Communications carries risks, and can limit an organization’s ability to engage in proof-of-concept testing before adopting a technology.

With UCaaS delivered through the cloud, some vendors allow clients to test-drive features within departments or among a focus group of users to determine whether they will work before purchasing the feature. This can enable organizations to cost-effectively innovate, and avoid technology implementations that fall flat.

10. Strategic Benefits and Cost

Startups, small businesses, and organizations with aggressive growth targets may struggle to fund the upfront investment required for a premises-based deployment of Unified Communications. Instead, they may find that the monthly, recurring cost of UCaaS is a better fit for their financial needs. When money is saved at the onset of UCaaS deployment, the funds can be redirected towards sales, marketing, or other activities that fuel business growth.

Is UCaaS Really More Expensive Than a Premises-Based Unified Communications Deployment?

In most cases, organizations find that a premises-based deployment of UC tools is slightly less expensive than UCaaS when they’re only evaluating the upfront investment cost of UC hardware and software versus the monthly fees for hosted UCaaS. This pricing gap is generally narrow; less than 15 percent according to one study, but not reflective of the true total cost of ownership for the two options.

In addition to the ten factors detailed above that can be quantified for a TCO analysis, organizations should consider the opportunity cost of staying on-premises. Premise-based deployments can limit an organization’s ability to adopt new features, functionality, or process improvements based on the outside perspective of highly-experienced cloud telecommunications experts. UCaaS can enable organizations to achieve unprecedented productivity and business benefits through agile, unified communication tools.

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Tom Collins
Post by Tom Collins
October 17, 2017
Tom is the Director of Enterprise Sales & Marketing for Atlantech Online. He has over 20 years of professional experience in the Internet Service Provider industry and is known for translating technology into positive results for business. A native of Washington, DC, a graduate from University of Maryland (degrees in Government & Politics and Secondary Education), Tom is also a five-time Ironman finisher.