How to Calculate the ROI of Moving to the Cloud

Surely you have already seen here on our blog the importance of migrating your products and services to the cloud and how much this represents for cost reduction and for the innovation that will be provided for both organizations and their customers.

This time, in addition to listing benefits, we want to show the financial return provided by migrating to cloud computing, and the best way to do this is to show how to calculate ROI – Return on Investment. The ROI is important because it not only helps in the viability of the business, but it shows that your efforts are being significant in terms of efficiency and project management, hence the need to measure and monitor it.

Some important concepts

To perform an ROI calculation some reference values ​​will be needed. They serve to survey the costs, which will serve as the basis for our analysis. To make it clearer, we are going to show you some data that you need to have on hand after transferring your solution to a Cloud Computing platform.

Survey the costs and gains related to the use of the cloud

Once the migration is completed, the company starts using storage units, processors, Internet links, memory, software licensing, etc. All this depends on the type of service that was contracted (SaaS, IaaS and PaaS), that is, all the assets that are used during the operation of your company.

You should know the cost of each one, as this is even useful for comparing with other market players in future analyses. You can call this indicator “solution cost”.

Another important data that goes into the cost calculation is the time of use and the volume of traffic, these are measures and amounts that are charged while your solution is in the air. You might call it the “usage cost”.

There will be other expenses related to the operation, however, before reaching these values, it is worth knowing what your company is actually spending with the use of the cloud. These values ​​will be included in the calculation of the ROI, as a suggestion it can be called “Operation cost”.

Ideally, this cost survey should be carried out during the planning phase, as it helps to verify whether what was estimated was similar to the investment cost after the effective use of cloud computing solutions.

So, if you haven't already done so, do so or review with your IT and business team. At the end you will have the total cost of the investment, which will be fundamental for our calculation.

Finally, it's time to know what was actually gained after migrating to the cloud. Join the sales, marketing, finance, IT teams, among other related areas. Define how much was the investment gain with the use of cloud computing solutions in the period, check in which areas there was a reduction in expenses due to the migration, etc.

Time to put everything on the tip of the pencil

Once all the surveys have been carried out and the costs and gains related to the migration obtained, it is time to calculate the return on investment. The ROI provides us with an estimate to know if it was really worth all the time and financial investment.

To calculate the ROI, you must subtract the initial investment from the gain obtained with the investment. This result must be divided by the investment cost. See the formula:

ROI = (Gain obtained – initial investment) / initial investment

In one example, migrating a solution to use cloud infrastructure (IaaS) costs US$200,000 over three years and earns US$900,000 over the same period. In this case, the ROI result is 3.5. That is, the return was 3.5 times the initial investment.

ROI = ($900,000 – $200,000) / $200,000 = 3.5

And finally put it all on the scales

It is important to highlight that this calculation was the so-called simple ROI, where only investments and earnings are used. There are projects that are more complex and involve associated risks and subjective benefits, and therefore may require a more complex ROI calculation.

In general, at the end of the ROI calculation, if the indicators present a rate greater than 0, it is already an indication that the return is greater than the cost and it can be considered that the migration project to the cloud was worth it. .

If you are still in doubt, take advantage of the comments and send your question. Sky.One Sky.One you both in the calculation and in the migration of your company's solutions to the cloud. Get in touch with us and we'll be ready to collaborate. [:]