Save Money for Your Small or Midsize Business by Moving to the Cloud

There are many small companies out there with a rack of servers in a closet. Years ago, this was the expected way that companies supported their internal operations. My company has one too. Many companies depend heavily on this equipment to perform vital functions for the business operation. E-mail and files typically live here - lots of files!

In recent years, there's been a shift to a new IT strategy called "the cloud". For small companies that may not have a lot of cash to make big changes, a move to the cloud can seem to involve a lot of risks and requires spending precious resources.

Today, I want to take a few minutes to explain some of the most compelling reasons that you might want to find a will and a way to turn that closet full of equipment off - because losing that ball and chain could help to set your business free.

Cloud Savings from Electrical Utility Costs
For starters, all that stuff running in your closet uses a lot of electricity. It's hard to tell how much exactly, because that depends on how old the equipment is and things like how many CPUs, drives, extra power supply it might have installed. Air conditioning costs energy too, and many people fail to take cooling costs into account when they try to estimate how much energy their computers use.

You can make some educated guesses based on the size of the circuit breaker on your equipment rack. For example, if you run everything on a single 20 amp circuit and it isn't blowing out like a Christmas tree in a hundred-year-old house circa 1974, then you are probably consistently pulling less than 18 amps and it's probably more like 15. Converted to watts, that's 1800 to a max. of 2400 watts. That's more than enough to run 5 servers with 500 watt power supplies - assuming you don't power them all up at one time. If you have fewer servers than that running, you either have older equipment that consumes more power or you aren't really using the circuit to its capacity.

1200 w at 120 v = 10A

500 w / 120 v = 4.15A

Another rule of thumb would be to assume about 550 watts per server, unless there's something fancy going on like it has a redundant power supply.

So let's use my own equipment as an example and I'll see if I can guess how much it costs me every month.

Here's my inventory:

  • Firewall
  • Domain Controller
  • 2 Virtual Servers
  • Database Server
  • Other Small Load Equipment: Wi-Fi Router, Network Switches, Battery Back UPS 


5 x 550 w = 2,750 w

2,750 w / 120 v = 22.9167 A

Maybe it's a little more than that if you include all the low end equipment.

This runs on a 20 amp circuit, so if I were really pushing 22A or more then I'd be blowing the circuit all the time, but I do know that if we add anything like a mini-fridge to the mix then we will trip the breaker, so I'm probably not far off. I could use this figure and call the overhead the cost of air conditioning.

Fortunately, I have another way to tell. I have these two APC 1500 VA back-up batteries and each is nice enough to tell me their load. Right now each is sitting at about 50% load. So, that's about the same as saying that we're running is 15 amps. This figure makes more sense, because you have to figure that the servers need a little extra capacity for starting up and such.

I could've come to the same conclusion by guessing that my equipment uses about 70% of its max. capacity. All these methods brings me to about the same figure.

My system uses 15A * 120v = 1,800 watts. I'll round it up to 2,000 watts to make the math easier and account for cooling costs and spikes in use that occur once in a while.

So, how much is that in money? The power company charges me per kilo-watt-hour. That's a fancy term for saying that if I use 1,000 watts for 1 hour, that's one unit on my electrical meter - for which they charge me $0.12.

24 hours in a day times an average 30.4 days in a given month equals 729.6 hours per month. Remember that this equipment runs 24 x 7 x 365, in case some employee wants to VPN in at an odd hour and get a little extra work done. So we have 2 kilo-watts times 729.6 hours times 12 cents. That's about $175.10 a month or $2,101.25 per year. Over time that really adds up.

What if I could cut that power consumption in half, by removing some of that equipment? If I had a thousand bucks, I could do a lot of things with that money instead. Here are some examples: 

  • Office 365 E3 plans for 4 employees
  • A small virtual server in the cloud with a VPN connection to my local network
  • Business-grade broadband internet service
  • A fancy office lunch for all the employees once per quarter
  • An extra grand for me to take home as a bonus

In fact, over five years this alone could pay for about 25 to 50% of the budget for moving to the cloud.

We do some really fancy stuff with our servers, but most companies are doing pretty ordinary things with their equipment. Here's some examples: 

  • Domain Controller
  • File server
  • Backup server
  • E-mail server
  • Anti-spam appliance
  • Company Intranet site
  • Remote Login / VPN / Terminal Server
  • Accounting Software
  • Other Customer Application Servers


If you replace that old equipment with cloud services and virtual servers in the cloud, you can eliminate a lot of these. In fact, only the domain controller and those last two items are particularly challenging to phase out completely. Depending on how your systems are configured, that could be as many as 3 servers (maybe more) that are just sitting there chewing up power that you could save.

Cloud Savings by Avoiding Upgrades to Hardware and Software


All of that hardware may be aging; the recession hit a lot of businesses that haven't had spare funds to update their servers since before 2008. That was 5 years ago, when Windows Server 2003 was still considered reasonably current. A lot of it isn't upgradable, because it's 32 bit architecture and won't support the newer operating systems, which means you have to figure hardware into your upgrade costs as well.

Even if your hardware is state of the art with the latest operating system, chances are good that you'll probably want to upgrade it sometime in the next 3 to 5 years. Depending on what the hardware does and what software runs on it will say a lot about how much you could save by freeing yourself from that burden.

Likewise, at some point you're probably going to want to upgrade Microsoft Office. Many companies say they're perfectly happy using Office XP or 2007; often, they just don't know about certain features that could be of really high value to them. Because they can't afford to upgrade, they never get the chance to discover the benefits on their own. Office 365 solves that problem because your Office desktop client software is included with the service.

For example, modern versions of Office have improved abilities to collaborate on documents when they're saved on a SharePoint server. Two people can edit the same Word document or Excel spreadsheet at the same time from two different computers. Most folks also don't realize that Excel has some very promising business intelligence features now that can let you crunch your business data in ways that could give your company the competitive edge.

One customer told us that because they were switching to a cloud architecture, they would be able to stop buying the more expensive laptops they'd been providing to their employees, in favor of units that we about half the price. If you have less than 10 employees that may not seem like a big deal, but if you're buying computers for a larger team, the multiplying effect can lead to formidable savings.

Here are some examples of some hardware and software costs you can save by switching to the cloud:

  • Typical mid-grade business server: $3,000 to $6,000 per server
  • Cheaper desktops or laptops: $250 to $1000 per user
  • Windows Server operating system: $1,000 per server
  • Exchange Server software: $1,000 + $120 per user
  • Microsoft Office client software: $400 to $700 per user depending on edition 


There are other miscellaneous software expenses too, like Remote Desktop Server (terminal server) clients, VPN devices, anti-spam appliances like the Barracuda, or backup solutions like Veritas. Having some of these in your company typically comes with annual support contracts that must be renewed - that's kind of like paying for cloud services without getting the cloud. You may not be able to discontinue all of these services, but especially for those which charge per user, scaling back the number of seats can save you a lot.

Cloud Savings by Reallocating IT Service Costs
Of course, computers don't take care of themselves. Some companies have an IT staff of their own, others hire managed services companies or freelance IT tradespeople to help maintain their computer systems.

These services come at a cost. A full-time IT person can cost $80,000 a year to keep on staff. Part time workers will usually charge consulting rates of around $50-100 an hour or more. Such a consultant might cost you $25,000 a year even if you bargain shop and only give him 10 hours a week. 

Such services are necessary. Backups need to be run. Users need help with malfunctioning software or broken equipment. Server drives will get full, fail, or both. Learning all those systems and which levers to pull in order to keep them running is a distraction from your business operation. Most business consultants agree that smaller companies should outsource their IT needs.

It might be tempting to think that you'll be able to cut the budget for IT support if you move to the cloud; after all your IT staff or MSP will have less equipment to maintain. The truth is that this will probably be a wash, because it's common to see both IT departments and managed service providers starved to the bone for resources. Likely, some of your resources will shift to supporting the new cloud solutions instead of the old infrastructure. Also, there are probably projects that have needed attention for a long time where you could redirect those funds or hours instead of cutting back.

So, look for changes in where you get your IT support, how it is delivered, and what platforms it will support - but don't expect to unearth a gold mine of savings by cutting back on IT work when you switch to the cloud. Fortunately, there are so many other places to find savings that it probably won't matter.

Cloud Savings from Stupid Accounting Tricks
Another thing to consider is that in some cases there are significant differences between CAPEX and OPEX, meaning that capital expenditures - those which result in obtaining assets - require different accounting treatment then ongoing expenses like your phone bill. Because cloud services are operating expenses, you may be saving money on stuff like business property taxes and depreciation if you go into the cloud.

Another thing to point out is that cloud services do not have to be paid all at once. For example, buying Office 2013 for 25 employees could mean coming up with over 17 grand up front, tapping into a line of credit, or having to phase the purchase in slowly. Getting that kind of money for big expenditures can also involve jumping through flaming hoops. Such obstacles might delay purchases you need to make, and they'll certainly drain your productivity.

Cloud services also scale much better than conventional server infrastructure. For example, you might provision an Exchange server that is reasonable for 15 employees. Over time, as employees are added to the company and old e-mail accumulates that server would be overburdened, thus accelerating the pace at which you'd have to spend more to upgrade it. Or, alternatively, you could plan ahead and buy a server that could support up to 30 employees, but then all that added expense is an opportunity cost and wasted resource for every year that you don't use the server to its full capacity.

Cloud services typically come with an annual agreement, just like your cell phone plan, which means there are some limits on how fast you could scale back if you have to, but you can increase capacity at any time. So, there's no excess supply except in cases where you shrink the company a bit - and your maximum liability is something you can plan for. With the traditional server all you could do is wait for users to drop to zero and then turn it off - just before hitting the light switch on your way out of the office.

Cloud Savings from Productivity Gains
This is the fun part that I always like to talk about, because people really overlook it when they're trying to find ways to save money - and this is where the real money is.

Suppose your small company grows, and you need to hire another office employee to handle the work. That probably costs you anywhere from $50,000 to $80,000 per year - maybe more depending on their qualifications, experience, and the value they bring to your company.

Suppose your company does less well than you'd like and you want to cut your staff. Everyone else would feel the pinch as their work is transferred to the rest of the team. The added workload affects morale, and productivity could drop - increasing the chances that you'll continue to slide downhill.

My point here is that whether your company is struggling or growing, both of these come with a cost. What if you could mitigate that cost by cutting out wasteful activities that aren't really productive but have just sort of become habits because you've always worked that way before?

If your business is like a lot of other companies, you probably have some pretty typical work patterns in your office. Here are some examples:

  • You have a network file share that you've been using for years; maybe you have everything going back to the early days of the company; there's an elaborate folder structure to keep everything organized, which has changed over time; finding things involves digging around in different folders until it turns up or asking the office admin if they know where it is.
  • Once in a while, somebody deletes a file off the network file share; either you don't ever find out about it, or when you need it you have to go to a backup since there's no recycle bin for the file share.
  • Since there's no official document retention policy - or way to automate it - old documents just pile up and lay around making everything else harder to find.
  • You have tons of documents living in e-mail; when you need a document you have to search Outlook to find it; sometimes you're not sure if it's the latest version or not.
  • You archive your old emails to gigantic PST files which you can only access on your work computer, because the file has to live on the network share in order to get backed up.
  • When you're on the road or working from home, you have to remote into a terminal server so that you can get access to all of your files at the office; you can't use your tablet or smartphone to do it; it's extremely slow compared to working on your home computer.
  • Your version of Office at home is different than the one you have at work, and so some of the stuff that you can do in the office can't be taken home with you
  • If there's an internet connection or electrical issue at the office, you can't really work from home, because VPN is down; business just shuts down for the day until the crisis is past.
  • If you do most of these things, chances are you could gain a lot of productivity by moving to the cloud. And, if you do any of these, chances are pretty good that everyone else in your office has the same bad habits and coping skills.

Logging into VPN, working with slow connections, foraging for documents, lugging portable drives back and forth, trying to find the correct version among duplicates, waiting for e-mail and file searches to finish running, being at specific computers to in order to complete certain tasks, and having to ask other people where to find that important file are all wasteful unproductive activities. Up to a certain point in time, they were considered necessary, just like people still consider driving to and from the office to be necessary - at least some of the time.

According to one McKinsey study, workers spend about 30% of their time reading and answering emails, 20% of the day looking for things, and 15% communicating and collaborating with their fellow workers. That's a whole workday every week spent looking for information, much of which may already exist inside your own company.

And yet, if each employee in a 25 person company could save just 2 hours a week by cutting down on how long it takes to find things, that'd add up to 50 hours a week in reclaimed productivity. In other words, you can add an entire virtual employee to the rolls without paying a penny - whether you simply avoid hiring another warm body or have to make due with less staff, either way you're looking at an effective savings of $50-80k.

The reality is that you can probably save a lot more than just 2 hours per week; that's just 24 minutes a day. If you think of it more like a worst case scenario, it's a pretty darn compelling argument to go ahead and make the change even if it costs you a little in the short run.

Think your company could benefit from a move to cloud architecture including Office 365? Reach out to us and we'll develop a custom migration plan, cost breakdown, and ROI.