Cloud migration ROI: build a case that holds up

Cloud business cases often fail for one of two reasons: they compare only the price of servers, or they present a single saving figure that falls apart the first time someone asks how it was calculated. This guide shows how to calculate the return on a cloud migration in a way that stands up to a finance director’s questions. It covers the formula, the costs on each side, and how to present the result.

The basic calculation

Return on investment compares what you gain with what you spend, over a fixed period:

ROI = (total benefits minus total costs) divided by total costs

Pick the period first, usually three to five years, because a cloud move has up-front costs and the benefits arrive over time. Then work out the payback period: how long until the cumulative benefit covers the cumulative cost. A case that shows both is easier to trust than one that shows a single percentage.

A worked example (illustrative, invented figures)

The figures below are invented to show the arithmetic. They are not from a real business and are not a typical result.

Over five years	Amount
One-off migration cost, including dual running	£60,000
Cloud running cost	£300,000
Total cost of moving	£360,000
Current-state costs that stop (hardware refresh, hosting, support, staff time)	£430,000
Net benefit	£70,000

ROI = £70,000 divided by £360,000, or about 19% over five years. If the costs that stop are spread evenly at £86,000 a year against £60,000 a year of cloud running cost, the £60,000 up-front cost is paid back in a little over two years. Change one assumption, such as the staff time saved, and the answer moves, which is why the result should be shown as a range.

The formula is the easy part. The work is making sure every number in it is honest.

Start with what you run, by layer

Split your estate into three layers, because they cost and move differently:

• Software (SaaS): applications you consume, such as Microsoft 365. Usually the largest and most overlooked cost.
• Platform (PaaS): databases and application services where you do not manage the servers.
• Infrastructure (IaaS): servers, virtual machines, storage and networking, whether on your premises or in the cloud.

For each layer, list what you run, who owns it, and what it costs today.

The current-state cost, honestly

A fair current cost includes more than the hardware invoice:

• Hardware, hosting or datacentre space, power and cooling.
• Software licences and support contracts.
• Backup, disaster recovery and security tooling.
• Network and connectivity.
• Staff or supplier time to run and maintain it, which is often the biggest hidden cost.
• Refresh cycles: the cost of replacing kit in the next few years.

If you leave out staff time and refresh, on-premises looks cheaper than it is. If you include costs that will not actually change, the cloud looks better than it is. Both errors destroy credibility.

The target-state cost

For each workload, decide whether it will be moved as it is, rebuilt on managed services, replaced, or retired. Then estimate the running cost using realistic sizing, not the size of today’s over-provisioned servers.

Two pricing choices change the result a lot. Reserved or committed pricing usually lowers cost but reduces flexibility, so state which you assumed. And some existing licences, such as certain Windows Server and SQL Server licences with Software Assurance, may be usable in the cloud at a lower price under Microsoft’s licensing terms. Eligibility depends on your agreement, so check it with Microsoft or your licensing supplier before you count it.

The costs people forget

• One-off migration cost: planning, tooling, testing, cutover and project management.
• Dual running: you pay for both environments until cutover is complete.
• Data transfer and connectivity: especially for large datasets or heavy traffic.
• Skills and training: new tools mean new capability.
• Licences that change: some software licensing behaves differently in the cloud.
• Exit and contingency: a contingency line for what you cannot foresee.

Counting the benefits

Separate the benefits into two groups and never blend them.

• Hard benefits are costs you will actually stop paying: retired hardware, ended support contracts, a datacentre lease you can exit, licences you no longer need. Each one should trace to something on an invoice.
• Softer benefits are resilience, speed of change and reduced risk. They are real, but they are harder to value. Show them separately, with a stated basis, so nobody mistakes them for cash savings.

What cost calculators can and cannot do

Cloud providers publish pricing and cost-estimate tools, including Microsoft’s Azure pricing calculator and the business case feature in Azure Migrate. They are useful for estimating running costs, but they only work from the inputs you give them. They cannot tell you whether your current-state costs are complete, whether your sizing is realistic, or whether your assumptions about utilisation will hold. Treat the output as one input to the case, not as the case.

Show a range, with the assumptions visible

Present the result as low, expected and high cases, and list the assumptions that drive the difference: utilisation, price changes over time, delay to cutover, and cost overruns. This turns “we will save a fixed percentage” into “we expect savings in this range, driven mainly by these three assumptions”. The second is far easier to defend and to review after the fact.

Test it before you present it

Ask a sceptical colleague to challenge each line. Check that every saving traces to something you will actually stop paying for. Check that the benefits you count are either valued sensibly or shown separately from the hard costs.

Be willing to reach an unexciting answer

Sometimes the honest conclusion is to move some workloads, keep others, and fix licensing first. A case that can say “not yet” or “only these” is more trusted than one that always says “move everything”.

About this guide

Innoligo is an authorised Microsoft CSP partner. This guide is general information and applies whichever cloud provider you use. A cloud migration assessment builds this view from your actual environment, layer by layer, and ends with a sequenced roadmap. If you are weighing a VMware renewal, see the VMware to Azure assessment.

Microsoft, Azure and Microsoft 365 are trademarks of the Microsoft group of companies. This guide is independent and is not published or endorsed by Microsoft.