This guest post is written by EO Seattle member James Wong. James is the co-founder and CEO of Avidian Technologies, makers of Prophet, the easiest CRM software for Microsoft Outlook.

Many sales teams use customer relationship management (CRM) software to keep track of all their customer information, create a consistent sales process, track goal progress and forecast sales for an allotted period of time. If you’re considering CRM software, one of the crucial decisions you need to make is whether you want an on-premise solution, which is physically located on your own infrastructure, or a hosted solution, which is maintained by your vendor in the cloud. Hopefully, the following breakdown of the benefits of each avenue will help you decide which type of solution will work best for your business.

Hosted solutions tend to make the most sense for small- to medium-sized businesses (SMBs). One of my clients who uses a hosted offering recently told me the low initial entry cost and simple set-up and maintenance of going hosted made a big difference for his company. This client has a limited technology budget and limited in-house IT personnel so not having to deal with all the IT back-end associated with an on-premise CRM has allowed them to focus on what’s really important— sales and customer service.

Many SMBs also do not have top-of-the-line security and backup functionality that vendor companies offering hosted services usually do so going with a hosted solution can be safer. Additionally, security and technology updates are maintained by the hosting company, thus further easing the burden on you. Perhaps most important, your vendor has to earn your business time and time again since it’s a “rental” service rather than a buy-and-forget solution. This helps to ensure great customer service and technical support.

However, in some instances, an on-premise solution might actually be the best option— even for SMBs. For example, if your organization’s infrastructure is already in place and capable of handling the solution’s backend, then you may save money in the long run by buying an application and managing it on your own.

Another potential costs savings from an on-premise solution, one that another client recently shared with me, was the benefit of not having to pay for monthly or annual contract fees for individual licenses during the up and down economic climate. Hosted solutions usually follow this time-based contract model. With a fluctuating number of employees on this client’s sales staff having a set number of licenses that weren’t always being used could be costly. An on-premise solution helped this client avoid the unnecessary licensing costs that he could have been locked into with a “rented” hosted CRM. Also, with an on-premise solution, an organization is physically closer to its own data and is thereby able to be more involved in the finite details of the solution. This might give some organizations greater peace of mind.

Finally, with an on-premise solution there is less of a chance data will be inaccessible due to a loss of outside connectivity. You’ve got to ask yourself what would be the result if your Internet connection goes down for a time and you can’t access all of your data. Some are willing to take this risk because the benefits outweigh it, others are not. Some of you may have an on-premise solution and feel its time to move to the cloud. If you’d like to make this transition you should keep in mind several best practices to make the transition as smooth as possible. You want to start with a well-planned migration. Next, make sure to back up all your data before you begin transitioning, that way if a mistake should happen in the transition, you won’t lose any data.

On-premise and hosted CRM are both great options, but you’ve got to remember to carefully weigh all the factors of on-premise versus hosted, and choose the solution that’s right for you.