What is TCO? Understanding Total Cost of Ownership

It’s no secret that you’ll need to make investments into your business in order for it to grow as efficiently as possible. Buying equipment, for example, is a cost you’ll need to incur in order to increase your overall productivity and generate more revenue.

But, the purchase price isn’t the only fact you need to consider. The total cost of ownership (TCO) is a metric you’ll need to keep in mind when allocating funds toward business-related purchases.

Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know.

So, What Is It?

As the name implies, the total cost of ownership is the amount of money that you spend on a purchase combined with the amount of money it takes to use and maintain it. A printer, for example, has its total cost of ownership influenced by not only its purchase price but also the cost of ink, toner, etc.

This number helps you have a better understanding of how much money you’ll actually need to spend when you make purchases for your company.

Why Is It Important to Understand?

In simple scenarios (such as buying a printer), TCO can ensure that you budget correctly. But, not all investments are on this small of a scale.

The total cost of ownership is used as a qualifying metric for many business deals, as an agreement may be more or less favorable as time goes on. This could be for tangible goods (such as acoustic insulation) or for services, such as extra training for your company’s security personnel.

In some cases, the total cost of ownership gets particularly nuanced. A common example is when a business purchases a company vehicle, as there’s a large handful of factors to consider in this scenario. Oil, gas, and necessary repairs are costs you’ll experience over time.

How Can I Get The Best Idea of TCO?

Put simply, you’ll have a better understanding of TCO when you conduct more in-depth research. This means you’ll need to consider all of the relevant factors that could influence how much money you’ll spend on your purchase over time.

This becomes increasingly important the larger the purchase is.

For instance, imagine that you’re seeking to acquire a smaller company in order to boost the overall revenue of your primary business. Even if the smaller company has a high amount of revenue, its cost of ownership could negate how much money you’re able to generate. 

In some cases, it may even result in financial loss. So, be sure to research as thoroughly as possible before making large-scale purchases.

Understanding TCO Can Seem Difficult

But it doesn’t have to be. With the above information about TCO in mind, you’ll be well on your way toward making the best decisions for your company. 

Want to learn more tips that can help you out in the future? Be sure to check out the rest of our blog.