One of the biggest decisions for IT departments: keep running Exchange on-premises or migrate to Exchange Online (Microsoft 365)?

Let's look at real numbers for a 50-user company to see which actually costs less.

On-Premises Exchange: The Total Cost

Initial Setup Costs:

  • Server hardware: $3,000-5,000
  • Windows Server license: $1,000
  • Exchange Server license: $700
  • User CALs (50 users): $2,000
  • Installation/setup labor: $2,000
  • Total initial: $8,700-10,700

Annual Ongoing Costs:

  • Software Assurance (updates): $800/year
  • Hardware warranty/maintenance: $500/year
  • Backup solution: $600/year
  • Power/cooling: $300/year
  • Admin time (5 hours/month maintenance): $1,200/year
  • Total annual: $3,400/year

5-Year Total Cost: $27,700

Exchange Online: The Total Cost

Initial Setup:

  • Microsoft 365 Business Basic (50 users): First month prorated
  • Migration labor (DIY or consultant): $0-2,000
  • Total initial: $0-2,000

Annual Ongoing Costs:

  • Microsoft 365 licenses (50 users × $6/month): $3,600/year
  • No hardware costs: $0
  • No server maintenance: $0
  • No backup software needed: $0
  • Reduced admin time (2 hours/month): $480/year
  • Total annual: $4,080/year

5-Year Total Cost: $20,400

The Winner: Exchange Online Saves $7,300 Over 5 Years

But the savings aren't just financial:

Exchange Online advantages:

  • No hardware to maintain or replace
  • Always up-to-date (no patch management)
  • 99.9% uptime SLA from Microsoft
  • Included disaster recovery
  • Scales instantly (add users in minutes)
  • Access from anywhere (remote work ready)

On-Premises advantages:

  • Complete control over data
  • No monthly fees (after initial investment)
  • Works during internet outages
  • Better for specific compliance requirements

But What About Admin Time?

This is where the math gets interesting. Exchange Online actually requires LESS admin time because:

  • No server patching
  • No hardware maintenance
  • No backup management
  • Microsoft handles infrastructure

However, you still need to manage users, mailboxes, and permissions. That's where tools like BUTTER save additional time - whether you're on-premises or cloud.

Read more: How to Bulk Add Users to Exchange Distribution List

Hidden Costs to Consider

On-Premises hidden costs:

  • Your time spent on maintenance (opportunity cost)
  • Downtime during hardware failures
  • Server room power/cooling/space
  • Hardware refresh every 5 years (another $10K)
  • Disaster recovery testing and maintenance

Exchange Online hidden costs:

  • Internet dependency (outages = no email)
  • Data sovereignty concerns (data stored in Microsoft datacenters)
  • Requires reliable internet connection
  • Less control over troubleshooting

    • What About Hybrid?

    Some organizations run both - on-premises for specific needs, Exchange Online for most users. This is the most expensive option but offers maximum flexibility.

    Hybrid makes sense if:

    • You have compliance requirements for on-prem data
    • Migrating users gradually (200+ user environments)
    • Need both control and cloud features

    Making the Decision

    For most small to medium businesses (under 200 users), Exchange Online is the clear winner financially and operationally.

    Stick with on-premises only if:

    • You have specific compliance requirements
    • Your internet is unreliable
    • You already have significant investment in on-prem infrastructure

    Otherwise, migrate to Exchange Online and:

    • Save money over 5 years
    • Reduce admin burden
    • Improve reliability
    • Enable remote work
    • Focus on strategic projects instead of server maintenance

    Learn More About Exchange Online

    If you're considering migration or already on Exchange Online, invest in training:

    Make informed decisions backed by real data, not vendor hype.