Cloud Network vs On-premises: Which Has Lower Network Cost?

When a business is setting up a new office, it has two main choices: it can run applications and store data in the public cloud, or it can buy and maintain servers at its own location. But which option carries the lower network cost? Cloud services frequently require less upfront investment, while opting for on-premises infrastructure can become more economical after years of steady use.

Neither of these options eliminates the need for a local network. Your office still needs switches, a router or firewall, Wi-Fi access points, Ethernet cabling, and installation labor. Cloud-managed networking is a different concept. It uses the office's equipment and cabling, while an online platform lets you configure and monitor it remotely.

This guide describes which components you need to consider as part of your network budget, compares cloud and on-premises expenses, and illustrates them with examples of five-year deployments of offices with 20 and 150 users.

What Components Are Included in Network Costs?

Network costs include more than the price of a switch or a monthly cloud bill. You also need to consider the installation, operation, maintenance, and eventual expansion of the system.

Equipment and installation

What most office networks need:

• A router or firewall
• Network switches
• Wi-Fi access points
• A rack or cabinet
• An uninterruptible power supply
• Ethernet cable
• Patch panels
• Keystone jacks
• Wall plates
• Patch cords
• Cable-management components

An on-premises system may also need:

• Servers
• Storage
• Backup equipment
• Additional power protection

Those are basically the physical components, but (unless you are a technician or a DIYer with the know-how and tools), you’ll also need to pay for installation labor.

Installation costs include:

• Cable routing
• Termination
• Labeling
• Testing
• Equipment configuration

The labor can cost more than the cable because every run must be installed and checked correctly.

To give you an idea for early planning, straightforward commercial Cat6 installations often cost about $150 to $250 per drop. If you have difficult routes, finished walls, conduit, high ceilings, or are using Cat6A, these factors can raise the price to $450 per drop.

The term “drop” refers to one cable run that goes from the network room to a device location. An office with 20 users may need more than 20 drops because it also has access points, printers, phones, and cameras. So, count the cable drops by device location, not only by the number of employees.

Disclaimer: These prices are based on up-to-date information on the U.S. market. Costs vary depending on the exact location, service provider, and your specific infrastructure.

Ongoing expenses

Cloud and on-premises systems have different recurring costs.

Public-cloud expenses may include:

• Virtual servers
• Storage
• Backups
• Data transfer
• Monitoring
• Security services
• Technical support

On-premises expenses may include:

• Software licenses
• IT support
• Electricity
• Cooling
• Backup management
• Hardware maintenance
• Replacement parts

For a cloud-managed local network, you may also have to pay for licenses or subscriptions. This depends on the platform. Some systems charge per device, while others provide basic cloud management without a recurring fee.

Growth and replacement

When planning a network, it’s important to leave room for growth, such as additional employees and more equipment.

Growth may require:

• More switch ports
• Additional Wi-Fi access points
• New cable runs
• More storage
• Greater cloud capacity
• Additional software licenses

Plan for five years. Hardware can fail before this timeframe. It’s wise to include a reasonable allowance for replacing a switch, access point, storage drive, or power supply.

The total cost includes the costs of purchasing, installing, operating, maintaining, and replacing the system over time.

Cloud Network and On-premises Network Costs

Public cloud and on-premises infrastructure entail different costs, while cloud-managed networking is a separate management option that can be used with either approach.

Public-cloud network costs

With public cloud, you rent compute, storage, and related services from a provider instead of buying all the required server hardware.

Some common examples include AWS, Microsoft Azure, and Google Cloud, but each of their services and pricing models differs.

Public cloud can reduce the initial investment and lets you add or remove resources without installing new servers in the office.

Your monthly bill will depend on:

• The number and size of the virtual servers
• Storage capacity
• Backup requirements
• Data transfer
• Service region
• Support level
• How long resources remain active

This flexibility can benefit a growing business or one with changing workloads. Resources you don’t use can still generate charges, and frequent data transfers can increase your bill.

The office still needs its local switches, access points, router, and cabling.

Public cloud changes where applications are hosted and where data is stored. It does not replace the local network.

Cloud-managed local network costs

A cloud-managed network keeps the switches, access points, firewall, and cabling at the office. Administrators manage them through an online dashboard.

This can make it easier to:

• Configure several devices
• Review network alerts
• Install updates
• Monitor performance
• Troubleshoot remotely

Depending on the platform you choose, you may have to pay for subscriptions or per-device licenses. However, some platforms include free basic management and charge only for advanced features.

Cloud management may save administrative time, especially on a larger network. It does not remove hardware, installation, or cabling costs.

On-premises network costs

An on-premises system keeps servers, storage, and related equipment at the business location.

The business usually needs to invest in:

• Servers
• Storage
• Backup equipment
• Software
• Installation
• Power protection

Those are not all the costs. The business also becomes responsible for power, maintenance, security, updates, repairs, and replacements.

One advantage is its greater cost predictability. Once you buy the equipment, you don’t need to pay a public-cloud usage charge for work completed on your own servers.

On-premises infrastructure can provide good long-term value when workloads remain stable and the equipment is fully utilized. It loses cost-effectiveness when a business purchases capacity that it does not need.

Expert Tip: Compare a complete cloud bill with the complete cost of owning local equipment. Do not compare cloud services with only the server's purchase price.

Cost Comparison

The following examples show you how office size and usage can affect your costs. These are simplified estimates based on current market rates and vendor pricing, not specific quotes.

For both examples, we assume:

• One office location
• A new Cat6 installation
• Business-grade equipment
• Five years of use
• A repair and replacement allowance
• Typical U.S. pricing

These estimates exclude taxes, shipping, financing, temporary promotions, employee computers, general business software, and the ordinary internet service bill.

For this cost comparison, we checked prices and service information for July 2026. Of course, the actual amounts depend on the building, equipment, workload, region, and support requirements.

20-user and 150-user network cost examples

For the 20-user office, we assumed approximately 30 Cat6 drops, two access points, a 48-port Power over Ethernet switch, a router or firewall, several phones, printers, and cameras.

For the 150-user office example, we assumed around 200 Cat6 drops, several switches, about 12 access points, a larger firewall, multiple patch panels, and a full network rack.

To keep the estimates comparable, the 20-user cloud range assumes two small general-purpose virtual servers, about 2 TB of active storage, 1 TB of outbound data per month, backups, and outside technical support. The 150-user range assumes about eight virtual servers, 15 TB of active storage, 8 TB of outbound data per month, backups, and a larger support allowance.

The on-premises ranges assume comparable server and storage capacity, software, backups, electricity, routine IT support, and a repair or replacement allowance. Again, these are hypothetical planning assumptions, not quotes.

The cloud estimates don’t cover data-heavy processing or specialized applications.

Note that the number of employees alone does not determine the final price. Usage plays a crucial role when it comes to pricing: a 20-user engineering company processing large files may use more resources than a 150-user office running basic browser-based applications.

For a 20-user office, the public cloud may seem attractive because it lowers your initial investment. You can begin with the resources you actually need and increase them later.

On-premises infrastructure may produce a similar or lower five-year total when the workload is predictable and the business has affordable technical support.

In the case of a 150-user office, continuous cloud usage can generate a large recurring bill. On-premises infrastructure can actually become more economical if the company really uses its purchased capacity efficiently.

The business also takes on greater maintenance responsibility and a much higher initial investment.

You can add cloud-managed networking to either approach. You should include any license or subscription separately in the five-year calculation.

Expert Tip: Build the cloud estimate from your expected usage, then calculate a higher-usage scenario to see how growth could affect your final bill.

Can you reuse existing cabling?

In these examples, we assume a hypothetical new installation. If you reuse existing cable, you may reduce the initial expense.

Before reusing a cable run, check:

• Its cable category
• The cable's physical condition
• The terminations
• The required connection speed
• The available ports
• The test results
• Its Power over Ethernet suitability

Don’t replace working Cat6 simply because Cat6A is newer. Cat6 is suitable for many standard office connections. Cat6A is suitable if the installation requires full-distance 10 Gigabit Ethernet or higher-performance links.

Tips to Minimize Network Costs

Comparing incomplete costs or buying capacity that you may never use are two common budgeting mistakes. Keep the estimate practical by avoiding some recurring mistakes, such as the ones below:

Avoid these common budgeting mistakes

• Provisioning for peak demand and leaving it active. Many cloud resources continue generating charges while they remain provisioned or running, even when their usage is low.
• Leaving the local network out of a cloud budget. Moving applications to the cloud does not eliminate the need for switches, access points, a firewall, or cabling.
• Skipping a replacement allowance. A five-year on-premises-plan should include provisions for replacing failed components such as a switch, storage drive, power supply, or other critical hardware.
• Overbuying ports and access points. Some spare capacity is reasonable, but unused hardware and licenses add costs without adding value.
• Mixing cabling categories. If you use a Cat5e-rated jack in a Cat6 run, this lowers the specified component rating and can prevent the complete channel from being rated or certified as Cat6. Match the cable, jacks, plugs, and patch panels by category and conductor type.

Simple ways to reduce costs

• Count users, devices, and cable drops before buying equipment.
• Reuse existing cabling only after thoroughly testing it.
• Use Cat6 for standard office links, and choose Cat6A only when the required speed, distance, or application justifies it.
• Plan cable routes and label every cable and patch-panel port.
• Review unused cloud servers and storage regularly.
• Test every run before walls or ceilings are closed.

Expert Tip: Saving money on testing or compatible terminations can lead to higher troubleshooting and replacement costs later.

Frequently Asked Questions

Is public cloud cheaper than on-premises infrastructure?

Public cloud is usually cheaper at the beginning because the business does not need to purchase as much server equipment. It may not remain cheaper over five years. The result depends on usage, storage, data transfer, support, and the cost of maintaining local equipment.

What is included in the network cost?

It may include switches, routers, access points, servers, storage, Ethernet cabling, patch panels, jacks, installation, testing, cloud usage, licenses, support, electricity, maintenance, backups, repairs, and replacement equipment.

Does cloud networking eliminate cabling costs?

No, public cloud services do not remove the local network. Computers, access points, phones, printers, cameras, and switches still need a local connection. Even a mostly wireless office needs Ethernet cabling to connect its access points and other infrastructure.

How much does a small-business network cost?

There is no universal amount. The cost depends on the number of cable drops, equipment level, building access, labor, cloud usage, and server requirements. In the 20-user example, the local network and Cat6 installation cost approximately $10,000 to $17,000.

Which option has the lower five-year network cost?

Public cloud may cost less when usage changes frequently and the business can scale its resources down during quieter periods or when it just wants to avoid a large initial investment. On-premises infrastructure may cost less when usage remains stable and the equipment is fully utilized. Neither option is always cheaper.

Conclusion

• Public cloud usually lowers the initial investment, but its recurring charges continue for as long as the services remain active.
• On-premises infrastructure requires more money at the beginning. It can produce a lower network cost over five years when workloads are stable and the business uses the equipment efficiently.
• Cloud-managed networking can simplify administration, but it may add separate licensing costs.

Regardless of where the servers are located, your office still needs a reliable local network. Plan the cable routes, select compatible components, and include installation, support, and future expansion in the budget.

Run the full five-year total for both options before you sign a cloud contract or approve a hardware quote.