Unlock Your Business’s Hidden Potential: The Smart Executive’s Guide to Calculating Real Cloud ROI

Moving your business to the cloud isn’t just an IT decision—it’s a strategic business transformation that can either unlock tremendous value or drain your budget if not properly calculated. Only half of businesses, surveyed by PwC, said to have realized the target outcomes: cost reduction, higher resilience, and increased revenue among others. The key to joining the successful half lies in understanding how to calculate the real return on investment (ROI) of your cloud migration.

Why Traditional ROI Calculations Fall Short

Most businesses make a critical error when evaluating cloud migration: they focus solely on the obvious cost savings. A major part of the problem is that it’s not easy to ascertain what the return of investment (ROI) is. As Alistair Maughan, partner at law firm Morrison & Foerster LLP, points out: “ROI is hard to measure in the cloud area because it’s difficult to accurately assess and assign a value to the extra ‘hidden’ costs of cloud adoption.

It’s key since it helps firms see if their investment in the cloud is really paying off, not just in terms of saving costs but also by including side benefits like improved performance, higher business flexibility, and lower environmental impact. This comprehensive approach is what separates successful cloud migrations from disappointing ones.

The Foundation: Establishing Your Baseline

Before you can calculate ROI, you need to understand your current total cost of ownership (TCO). To determine the ROI of shifting to the cloud, start by establishing a baseline of your current costs and operations. This baseline should include:

• Hardware, software, maintenance, and operational costs
• Costs of space, electricity and maintenance all add to the TCO
• Staff time dedicated to managing on-premises infrastructure
• Downtime costs and lost productivity

The final number you’ll get after all these calculations will allow you to compare your in-house expenditures with the ones you’d have when migrating to the cloud. This will have you one step closer to knowing the ROI of cloud computing.

The Real ROI Formula That Works

The basic cloud ROI formula is straightforward: Cloud ROI = (Total benefits from the cloud investment – cost of the cloud investment) / total cost of cloud investment

However, the complexity lies in accurately calculating both sides of this equation. Then, estimate both the one-time migration expenses and ongoing cloud operating costs, as well as direct and indirect benefits, such as cost savings

Hidden Costs That Can Derail Your ROI

Understanding the complete cost picture is crucial for accurate ROI calculations. The Average cloud migration project costs around $1.2 million for an enterprise org. But this is just the beginning. Consider these often-overlooked expenses:

• Migration costs: Apart from the expenses directly associated with moving to the cloud, the shift to cloud computing entails significant changes in both the structure of IT and the personnel operating it. Enterprises might face interruption to their business continuity, as well as expenses linked to change management, integration, and the mismatch among different solutions
• Skill acquisition: The cost of training the staff should also be accounted for when calculating cloud ROI. You will need to employ consultants who guide your team on how to maximize the use of the cloud.
• Common residual costs from a cloud migration include losses in productivity due to vacated facilities and hardware, unused software licenses or unproductive staff. It can also involve the cost to run duplicate versions of the same system during a migration cutover period.

Quantifying the Intangible Benefits

The real value of cloud migration often lies in benefits that are harder to quantify but equally important. Beyond financial gains, consider intangible benefits like heightened agility, scalability, and security. Though challenging to measure precisely, these factors influence the overall ROI of cloud services.

Consider these measurable improvements:

• Downtime: Hardware servers are prone to downtime; this issue is significantly handled by migrating to the cloud. The cloud allows you to adjust according to the need of the hour, giving you the right resources at the right time, which leads to a steep fall in downtime.
• Productivity: The cloud creates a space conducive to smooth collaborative work where change is easily created and accepted. The ability to access resources from any browser creates a more productive environment, translating into better business outcomes.
• For example, if your on-prem system can only handle 10,000 concurrent users, but during peak periods, you have 15,000 users, 5,000 of them are underserved. Presuming each user’s value is $5 per transaction, the total revenue loss from the underserved users will be $25,000. Moving to the cloud and leveraging its auto-scaling support can help you scale easily during peak periods and accommodate all 15,000 users and more. This will lead to greater revenue and overall business growth.

Time Horizon: The ROI Game-Changer

As you can see, the ROI improves substantially, which makes sense: Cloud computing pays for itself over time, so the longer you commit to it, the better the ROI you’ll see. That’s easy to explain, as migration is a one-time expense, while the savings you get are cumulative.

Compared to traditional on-premises (on-prem) infrastructure, taking a cloud-native approach, ensures that Cloud migration drives an average 20% to 30% reduction in IT costs over time.

Industry-Specific Considerations

For businesses in regions like Contra Costa County, where Red Box Business Solutions operates, local factors can significantly impact ROI calculations. Red Box simplifies IT, so you can focus on your business. Cloud, security, 24/7 support—we do it all. Working with experienced providers who understand your local market can help ensure more accurate ROI projections.

Whether you’re seeking comprehensive cloud solutions sunny glen senior support or enterprise-level implementations, partnering with established providers can significantly impact your migration success and ROI realization.

Ongoing ROI Optimization

Cloud ROI requires continuous attention and refinement. After migration, you should actively track performance to ensure your cloud environment delivers the expected benefits. This involves monitoring key metrics like cost savings and performance improvements.

Don’t think that savings and profits will remain static over the year. Depending on how much you grow and the pricing system from your cloud provider, that ROI might fluctuate and need new adjustments.

Making the Business Case

Being able to calculate and convey the return on investment (ROI) of the cloud can help IT leaders justify cloud migration to key stakeholders. Let’s explore what cloud ROI is, how to calculate it, and how to sell it to leadership to allow for more innovation and growth.

When presenting your ROI calculations to leadership, focus on both immediate cost savings and long-term strategic benefits. 48% of CIOs and CFOs say cost optimization is their top reason and a cloud migration is the best way to achieve that

Conclusion: Your Path to Cloud Success

Calculating the real ROI of cloud migration requires looking beyond simple cost comparisons to understand the complete value proposition. The ROI isn’t limited to potential cost savings. It also includes how the cloud can drive business growth, improve efficiency, and enable innovation.

Success lies in comprehensive planning, accurate baseline establishment, and ongoing optimization. By following these principles and working with experienced partners, you can ensure your cloud migration delivers the transformational ROI your business deserves.