Thinking about a warehouse management system? Seth Patin explains seven confusing terms you may see in a WMS pricing proposal.
When buying a WMS, there are seven terms frequently used with very little explanation. When we discuss pricing models with new clients, we are often met with confusion about what the terms mean, and how they go together in a pricing proposal. We will take a look at seven common terms to understand their meaning and distinguish those that describe pricing models from those that describe deployment models.
When comparing proposals from different vendors, it is important to make sure that you understand each of the terms on this list and compare the proposals in an apples to apples manner, even if different vendors propose different buying methodologies.
“ It is important to make sure that you understand each of the terms on this list and compare the proposals in an apples to apples manner, even if different vendors propose different buying methodologies.”
– Seth Patin, President
Warehouse Management System Proposal Terms
WMS Terms for Pricing Models
The following four terms are related to software and services you are purchasing and the terms of that purchase. Software purchased under these terms can be deployed using any of the three deployment methodologies below.
1. SaaS (Software as a Service)
SaaS is rapidly becoming a key term in software purchase discussions, but most clients aren’t familiar with what a SaaS license entails. The concept behind SaaS is that you do not own your software, but rather are renting it for a period of time and usually paying for it in smaller monthly, quarterly, or annual payments rather than all at once up front.
A SaaS model software license often includes Cloud deployment, support, and maintenance, but it is not a requirement. Pricing will vary depending on the term of your agreement and any additional services (e.g. Cloud deployment) you include in your contract. The price you pay is for use (not configuration) of the software. If you choose to stop paying the periodic fee, you must stop using the software immediately and there is often a legally binding term to the agreement. It is important to realize that configuration and implementation of a SaaS solution is an additional cost that must be considered, and upgrading the solution may not be included in your SaaS contract and require additional service costs.
The advantage of SaaS is that you have much lower startup costs, but it is wise to weigh the startup savings against the total cost over time. The long term cost of a SaaS solution is actually higher than if you had purchased the same solution in a Perpetual License model, but the advantages can often outweigh the long term cost increase.
2. Perpetual License
This is the traditional software purchase method. You negotiate a price with the vendor and once you pay that price, you can use the software for as long as you want. Perpetual License pricing proposals often include additional purchase options such as maintenance and support. If you choose not to pay those fees, you can still use the software indefinitely, but you won’t be able to upgrade to new versions or call the vendor if something stopped working. As with SaaS, implementation and configuration is not typically included in the price, so it is important to weigh implementation cost along with the software cost.
Paying a maintenance fee gives you the right to upgrade to new versions of the software as they are released. Many SaaS model software vendors argue that paying a maintenance fee is an archaic concept, and you should not pay maintenance fees anymore. They claim that SaaS offerings do not require a maintenance fee. It is important, however, to understand that the cost of continued product development and improvement is a critical financial consideration for any software company. Whether they are selling a SaaS model or perpetual license, the cost of maintenance is definitely baked into SaaS pricing as a percentage of your periodic fees.
Paying a support fee gives you the right to call the vendor’s support services when your software is not working correctly. It is important to recognize the primary purpose of vendor support and understand how that can impact your business. Vendor Support Services are intended to help identify and resolve issues in your WMS, but they are not intended to be the first-line of support. The vendor’s support services are often not staffed to manage every single problem you have in the warehouse, and they are also not familiar with any external systems you may use. Your internal IT staff and Super Users should be capable of handling most day-to-day issues, and you should only need to call the vendor when their software is actually broken.
WMS Terms for Deployment Models
Deployment terms refer not to how you purchase the software, but rather where the software is installed. Solutions are deployed in three main ways. It is important to understand that these deployment methods do not necessarily stipulate a particular pricing model.
5. On Premise
An On Premise solution is installed on servers in your server room. The advantages of On Premise installation are significant, but the primary advantage is dramatically improved network performance. The typically quoted disadvantage is increased IT spend, which is a valid concern. Many people misunderstand On Premise installations to automatically be perpetual license purchases, but it is very possible to purchase on a SaaS license and install on your own servers. If you need the performance of On Premise, but do not want to lay out the startup cost, you may consider options such as a SaaS license for the software and hardware leasing through a major hardware manufacturer. Don’t automatically assume that in-house means high up-front cost.
Cloud is perhaps the most perplexing term in software today. Most people believe that a Cloud solution is automatically SaaS, but that is not always the case. A cloud solution is any software application that is offered to a user exclusively through the internet using the vendor’s server resources. Many Cloud solutions, such as Microsoft Office 365 or Salesforce, are indeed sold in a SaaS model for a monthly, quarterly, or yearly fee, but many companies offer cloud deployments for purchased software as well. It is also important to understand that purchasing a Cloud deployed solution does not automatically include the cost to configure or support that solution for your business.
For example, Microsoft and Salesforce.com do not include any configuration services in the cost of their SaaS licensed Cloud solutions. It is still necessary to purchase configuration services if you do not know how to do it yourself. The obvious advantage of Cloud deployment is outsourced infrastructure management which can reduce costs significantly and improve uptime percentages.
Hosting usually refers to a situation where you manage the servers, but they are in someone else’s server room (your vendor or a third party). In this deployment model, your IT staff are still required to make sure things are running, but networking, power, and physical security are managed by the hosting provider. This model may be used by companies that want full control over their servers and network, but do not want to invest in building a server room which can be very pricey.
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