CapEx Versus OpEx for Cloud Solutions

When upgrading to a cloud solution, it’s important to consider the costs. An upgrade can seem expensive. The price may dissuade you from going through with an upgrade even when you know it's needed. Luckily, there are two ways to go about making this purchase.

The first and more traditional way is through a process known as capital expenditure or CapEx. The second and often more desirable option is referred to as an operational expenditure or OpEx.

Capital Expenses (CapEx)

CapEx refers to money spent on fixed assets. Anything a company or an organization spends on once, be it a server array, desks, printers, vehicles, signs, or flowerbeds, falls under this category.

There are several advantages to CapEx. Assets purchased this way can be depreciated over time. The long-term total cost of ownership is lower than a similar OpEx expense. However, large upfront payments can upset cash flow and may not cover all the necessities of moving to the cloud.

For example, let’s say you were to purchase a collaboration solution as CapEx. One upfront payment would make you the proud owner of a brand-new server array. It would be secure within your company firewall, and you would have total control over it.

That is, of course, unless you can’t afford it. You may not have the budget to drop that much money on one purchase now. You may also be worried that a lack of short-term return on the investment might hinder your other projects. Owning your own server array would require you to manage labor, utilities, and HVAC. The overall cost of time and money is high.

Operational Expenses (OpEx)

OpEx refers to regular spending that covers ongoing expenses. Seasonal HVAC costs, printer ink, and an in-office coffee supply are examples of OpEx. Organizations with OpEx cloud solutions either lease the hardware or pay for access to their provider's network.

An OPEX solution will always have a lower upfront cost than a CapEx solution. However, these ongoing expenses will add up over time. Eventually, the total of OpEx will be far greater than CapEx. However, solutions that follow this model are on the rise and are often the right choice for most organizations.

Contracts for cloud solutions cover maintenance and support for the servers. This will reduce the burden on your IT team and allow them to focus on their day-to-day tasks. The lower upfront costs will also free cash flow and improve your short-term ROI.

Pros and Cons of CapEx and OpEx

CapEx and OpEx are budgeted differently and come with pros and cons. Capex may be more expensive up-front, but it comes with independence as well as long-term cost savings. Opex may cost more in the end, but it comes with the services needed to maintain it. It can also improve ROI.

OpEx provides licenses for access to a cloud network. This license is important for security updates and staying up-to-date on software releases. CapEx provides the hardware and any initial software installations. Updates and new releases are the owner's responsibility and may come with added costs and hassle.

This is also true when it comes to supporting the system. CapEx contracts require the owner to manage their own incidents and restore the system in the event of an outage. If your IT team can't fix it on their own, you'll have to purchase support, adding to your overall expenses. You may even have to replace the system entirely.

Reducing the cost of support with OpEx helps provide stability for the modern workplace, adding 99 percent network uptime for any cloud-based solution. This method will create a more attractive balance sheet and improve your overall financial health.

At Continuant, we help organizations deploy the cloud solutions that are right for them. For more than 25 years, we've helped our customers get the most out of their communication technology. We protect key investments during transitions and help our customers report maximum ROI.

Our experts will design a solution that best fits your budget, schedule, and architecture. Once it's deployed, we'll offer our full suite of managed services. This includes remote incident management and access to a 24-hour support desk. These services are both CapEx and OpEx, allowing you to choose whichever option is best for you.

Ready to take the next step in your journey to the cloud? Schedule a technology assessment to see what benefits you'll gain from a new solution.

* Editor's Note: This article was originally published in February 2019 and has been revamped and updated for accuracy and comprehensiveness.