Opportunity Cost Calculator

What is the opportunity cost in software selection?

When digitizing a company, the decision between acquiring a perpetual license (On-Premise) or paying a recurring subscription (SaaS) should not be based solely on the total price. The cost of opportunity is the value of the best unselected option. In financial terms, it refers to what your company fails to gain by immobilizing a large amount of capital in an initial purchase instead of investing it in areas that generate profitability.

SaaS vs. On-Premise: CAPEX and OPEX Analysis

The financial comparison between these two models focuses on how we manage cash flow:

• On-Premise (CAPEX): Involves a high initial capital expenditure. Although you avoid monthly fees, the money remains "trapped" in the asset, losing financial maneuverability.
• SaaS (OPEX): Is considered an operating expense. By paying smaller, distributed fees, you maintain available liquidity to reinvest in business growth.

The Role of Net Present Value (NPV) and Alternative Investment

To determine which option is more economical in the long term, this calculator applies the concept of Net Present Value (NPV). It's not the same to pay 10,000€ today as to pay it in installments over 5 years. If that initial 10,000€ were invested in a marketing campaign or in financial assets with an expected return, the generated profit could more than offset the cost of the SaaS subscription.

Key factors to consider in the calculation

• Discount rate: Reflects the interest or profitability you could obtain with the initial capital in an alternative investment.
• Maintenance costs: On-Premise licenses usually entail additional annual support and update expenses (normally between 15% and 22% of the initial cost).
• Obsolescence: SaaS software updates automatically, while the perpetual model may require a new major investment after a few years.