Cloud-Based Versus On-Premise CRM: Which is right for you?

On-premise and cloud-based CRM solutions are both great options, but you have to carefully weigh the pros and cons of each before deciding on the best solution for your company.

Cloud Data Center Torkild Retvedt - Creative CommonsMore and more CRM systems are now “cloud-based”, meaning they are accessed over the internet as “Software as a Service”, or SaaS. Championed by industry leader Salesforce, SaaS systems accounted for almost 47 percent of total CRM software revenue in 2014. Since it is accessed via the internet, you do not need to install or host the CRM on your company’s server, you simply log into a website.

However several CRM providers offer on-premise systems for installation on company servers, including CRM industry veterans such as Act!, Goldmine, Maximizer and Sage, along with Creedenz CXM, HeapSugarCRM and VTiger. For the Mac environment, there is marketcircle’s Daylite for Mac.

Although most people may believe that a cloud-based solution is the best option, this is not necessarily the case. Whether a Saas CRM system is more suitable than an on-premise installation depends entirely on your specific business needs.

The following breakdown of the pros and cons of each will help you to decide which type of CRM solution will work best for your business.

Advantages of Cloud-Based CRM Systems:

Lower Initial Cost. Cloud-based CRM systems are usually very cost effective. There is no need to purchase hardware, software or ongoing system upgrades. Companies using SaaS solutions typically pay a monthly fee on a per-user basis, and all system upgrades and enhancements are included in this monthly fee.

It can grow with you as needed. As your company grows, the SaaS system grows with you without the need to purchase additional hardware or software. You simply incur the monthly cost for additional users. Conversely, if business conditions change the system can be downscaled by dropping users, without the sunk cost of hardware and multi-seat software licenses.

Little Maintenance Required. Initial setup costs for SaaS CRM systems is typically lower than the equivalent on-premise software, and ongoing updates and backups are handled by the SaaS provider. SaaS systems reduce IT costs by outsourcing hardware and software maintenance and support to the SaaS provider.

No Long-term Commitment. Unlike an on-premise solution in which the software is purchased or licensed on a long-term basis, cloud-based CRM solutions are usually purchased on a month-to-month basis, or at most prepaid on an annual basis. If the CRM does not meet your company needs, unless yours is a highly customized version, you can change solutions quickly without forfeiting the upfront investment of an on-premise solution.

Accessibility. SaaS systems offer greater accessibility because as long as you have a computer with internet access, you can access stored data no matter where you are. Where there are multiple users, everyone has access to the most current data.

Reliability and Security. In many cases, a company’s data is more secure when entrusted to a SaaS provider, than in traditional on-premise software. Many providers operate geographically separate data centers. If an outage occurs in one, the second data center can continue operating and delivering the service.

Disadvantages of Cloud-Based CRM Systems:

Data Security. Data in a SaaS CRM system is transmitted over the internet and stored and backed up on the server of the SaaS provider. Depending upon your level of concern over data security, you may want to ensure that your application or browser connects to the SaaS server through an encrypted connection (this is the case if beside the URL in your browser you see “https://” or a padlock), and that your data is encrypted when stored on the server.

When stored in the cloud encryption of your data is important to ensure no one can read your files in storage. Especially if you have medical, financial or personal identity information in your files, then it would be wise to ensure the SaaS provider guarantees that all of your data on their servers is encrypted, and it is only decrypted when accessed by your company’s users.

Reliability of the SaaS Provider. What contingency provisions exist if the provider goes bankrupt, loses your data, or has an extended outage? Even if the provider offers remedies in these situations, you probably want ot have your own contingency plans.

Dependency on the Internet. Accessing the system relies on an Internet connection. If the internet connection is lost, access to your company data is lost. Secondly although not typically an issue for reasonably-sized databases, data is transferred to and from the SaaS provider at Internet speeds, rather than at the potentially higher speeds of a firm’s internal network.

Although most people may believe that a cloud-based solution is the best option, this is not necessarily the case.

Advantages of On-Premise CRM Systems:

More flexibility. On-premise CRM systems offer greater customization capabilities, so companies can tailor the features, interfaces, and other characteristics of their solution to best support their specific needs, integration requirements, and unique customer-facing processes.

Compliance with Regulatory Requirements. The security and accessibility of your customer’s data, especially if the data are medical, financial or government, may be stipulated contractually or under regulations such as HIPAA (the U.S. federal Health Insurance Portability and Accountability Act). Complying with these requirements may be easier when the data are in your own data center.

Ad-Hoc Reporting. Although cloud-based solutions provide varying level of reporting capability, and virtually all provide a means of exporting your data to a CSV or Excel file, an on-premise database allows you to access the data directly, such as through SQL queries, offering a higher level of data mining and querying than can readily be done with data in the cloud.

Control. As the importance of customer insight and customer relationships becomes more valuable, company management may feel that they need to make sure they have control of the data and it’s security.

Utilizes existing in-house IT infrastructure and personnel. If the company already has the IT infrastructure and staff in place to support the CRM, the incremental cost may be minimal.

Lower total cost of ownership (TCO). Although SaaS solutions are cheaper in the beginning, in time the costs can add up.  While on-premise CRM systems are more expensive initially, once paid for, it is housed in and completely owned by the company and may end up costing less over their lifetime.

Disadvantages of On-Premise CRM Systems:

Higher up-front costs. Unlike SaaS systems, on-premise CRMs come with large price tags. Software must be licensed, and the needed hardware to support its operation must be purchased.

Slower return on investment (ROI). Because they cost more at the outset, on-premise CRM solutions take longer to deliver ROI.

Increased maintenance. Ongoing maintenance and administration of a SaaS CRM are taken care of by the service provider. With on-premise CRM, company staff must be dedicated to ongoing system monitoring, maintenance, software upgrades, and enhancements. This can be an issue for smaller companies who have limited technical resources. Additionally, installing the programs, and dealing with server issues can sometimes involve a lot of troubleshooting for a smaller company with a limited IT department.

The Bottom Line

The low initial entry cost and simple set-up and maintenance usually make cloud-based SaaS systems the logical choice for small to medium sized businesses (SMBs). SMBs often have limited in-house IT resources so not having to deal with the IT infrastructure of an on-premise CRM is a further benefit.

Cloud vendors usually have top-of-the-line security for both data and their physical premises, as well as backup capability, something many small bsuinesses do not have. Additionally security, software and hardware maintenance and updates, and technical support are all handled by the cloud vendor, freeing the client from dealing with these ongoing tasks and letting them focus on running their business.

You have to carefully weigh the pros and cons of on-premise versus SaaS CRM offerings, and choose the solution that’s right for your business.

However in some cases an on-premise CRM system is the best option, even for SMBs.

Security, contractual or regulatory requirements may dictate that your data remain on-premise. Furthermore if your business needs a customized solution, on-premise CRM systems offer greater customization capabilities.

If your company’s IT infrastructure is already in place and capable of handling an on-premise system, then you may save money in the long run by licensing an application and managing it on your own servers. Particularly in installations with many users, the monthly fees of a cloud-based solution can quickly exceed the upfront licensing, installation on ongoing maintenance costs of an on-premise solution.

Finally with an on-premise solution there is less of a chance of losing access to your system if your internet connection goes down. If your CRM is accessed from remote locations or by salespeople while on the road, this is less of an issue because the connectivity is always needed. But if most of the users are under one roof (in the same location as your servers), the benefit of being able to function without internet connectivity may outweigh the advantages of a cloud-based solution.

On-premise and cloud-based CRM solutions are both great options. But you have to carefully weigh the pros and cons of each, and choose the solution that’s right for your business.

Want more information about a specific CRM? See our Directory of CRM Systems for product information and links to the company websites.

Have you implemented a cloud-based or on-premise CRM system? Are you happy with your choice? Tell us about it in the comments below!