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Total Cost of Ownership (TCO) - Business concept of the day

Total Cost of Ownership (TCO) - Business concept of the day

Finance & Accounting

GlobalLinker Staff

GlobalLinker Staff

2 Nov 2018, 13:29 — 2 min read

Definition: Total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation over time. When choosing whether to buy a product for their business, the business owner should look not just at the short-term price i.e, the cost they have to pay at the time of purchase, but also at the cost of operating the product for a period of time. 

 

Example: Let's take an example of calculating TCO for a delivery car which is priced at $100,000, $2130 to insure every year, Maintenance costs will average $1,000 each year & $500 registration every year. Let's assume the life of the vehicle to be 5 years, TCO: $100,000 + ($2,130*5) + ($1,000*5) + ($500*5) = $100,000 + $10,650 + $5,000 + $2,500, which gives a TCO for car at: $118,150. Over 5 years, business will pay $118,150 instead of just the purchase price of $100,000. 

Business Insight: There are three key components to TCO calculations: Acquisition/Physical Hardware Costs, Operating Costs and Personnel Costs.

 

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GlobalLinker Staff

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