The total cost of ownership (TCO) is used to calculate the total cost of purchasing and operating a technology product or service over its useful life. The TCO is important for evaluating technology costs that aren’t always reflected in upfront pricing. Your TCO is a great compliment to your business’s return on investment (ROI) as the ROI helps illuminate benefits that may not be readily apparent, such as improved employee productivity or increased customer satisfaction.
Importance of Total Cost of Ownership (TCO)
Many companies often underestimate the hidden costs of new technology solutions, which can have a negative impact on their performance. Without the appropriate funds to keep your equipment in top shape or the resources to train employees on the new product or service, the ROI won’t be as high as you’re expecting when making the initial purchase.
Main components of TCO
Many companies look at the TCO over a period of four to five years, however, depending on your business, it can be more useful to look at it over a shorter period of time. No matter the business, TCO usually includes several components, including:
- Planning and selection
- IT infrastructure requirements
- Application subscription or license costs
- Application design, configuration, and implementation
- Administration and maintenance
- Training costs
Additional costs included in TCO
- Shipping costs – Costs and complexity of shipping tends to increase with distance
- Shipping time – Impact this has on cost involves the need to carry sufficient buffer inventory to cover customer demands until new inventory arrives
- Inventory – Include the dollar value of inventory and financing cost of investment and carrying costs
- Quality costs – Efforts to avoid quality issues will result in increased travel and oversight time and cost of supplier
- Currency fluctuation – Purchasing a product from a foreign country with payment due in currency of that country should be taken into consideration
- Intellectual property, financial data, risk management, etc.
Most businesses today are looking to get an MFP for their document solutions. With the many options available on the market, it’s not always an easy decision. Connect with Brock Office Automation and innovate your business with Niagara’s office equipment dealer.