Cloud ROI (return on investment) is a measurement of how much money and time you save or make back from an investment in cloud technology. Cloud TCO (total cost of ownership) is the total costs associated with your new cloud technology—often compared to the total costs of your former server or data center deployment.
Both numbers are valuable not only after you migrate to cloud (when you likely need to prove value and keep costs optimized) but also before you migrate (when they can help you make a business case for migration, fully understand your options, and set expectations for cost, return, and the timing of those costs and returns).
Before you can calculate cloud ROI, you need to identify all the costs associated with your current server deployment (known as total cost of ownership or TCO). This means identifying operational or hidden costs that you’ll no longer have to worry about after cloud migration, including:
Servers: With an average lifespan of 3 – 5 years, servers need to be regularly repaired and physically replaced.
Server support: Load balancers, climate control, server racks, replacement parts…in addition to the servers themselves, on-prem comes with some supporting hardware, parts, and physical assets that need to be purchased, maintained, and replaced in regular intervals.
Software renewal/licensing (and over-licensing): Over-licensing costs US and UK companies as much as $34 billion per year, according to one study. To avoid this common pitfall, companies either need to keep rigorous track of who needs which software, or they need to move to the cloud where the number of users can often be automatically tracked, updated, and viewed by admins in an instant.
Electric bills: If 80 percent of servers are overprovisioned, that means 80% of on-prem companies are using more energy than they need and getting bigger energy bills than they otherwise would.
Real estate/space: Physical servers call for physical space, which means a move to the cloud can open up existing space for other uses or remove data center real estate from your budget entirely.
Cooling expenses: Cooling units and the energy they require are yet another hidden expense of hosting on-prem.
Maintenance: Server maintenance often calls for temporary staff or contractors, which is a line item you can ditch when you delegate that responsibility to your cloud vendor.
Asset management time/audits: The more assets your IT team has (including physical servers, load balancers, and parts, as well as non-physical assets such as software licenses and databases), the more your asset management practice has to track. This means more time, resources, and mental overhead.