Getting a great deal on a purchase doesn’t always mean you’ve got value for money in the long run. How can we tell if we’ve bagged a bargain? Enter, The Total Cost of Ownership (TCO).
What is the total cost of ownership?
TCO refers to the overall cost of a purchase, taking into consideration the purchase price as well as any operating costs and expenses over an asset’s life span. It’s a calculation that can help potential buyers make informed decisions about spending, giving a realistic estimate of costs to determine whether you’re making a worthwhile purchase. If you’re choosing between two items and one has a lower TCO than the other, this means it will be better value for money overall, even if the upfront costs are higher!
The TCO can be applied to anything. To get a better understanding of how it can work in practice, let’s apply it to the scenario of buying a car:
You’ve settled on car you want to buy second-hand; you know the make, model, colour, and age that you’re looking for. You’ve found it advertised with a private seller – it’s got some minor issues and signs of wear and tear, but the price looks great. You’ve also found a newer model in slightly better condition at a car dealership, and the dealer is offering a monthly PCP price that includes a three-year warranty with servicing and repairs, but at a far higher price than what you’d be paying the private seller.
If you choose to buy from the private seller, you’re getting the best upfront cost. It’s a no brainer, right?
Wrong.
When considering ‘how much will this cost me? Am I getting a good price?’, we can make the mistake of disregarding all the indirect, long-term costs of the car that can add up. Maintaining the ‘cheaper’ car may eventually outweigh the cost of the more expensive option, meaning the bargain you thought you had bagged wasn’t actually a bargain at all.
The measured (albeit slightly less fun) approach is to work out the TCO before buying the car. The formula below can be applied to pretty much anything to work out exactly how much something is going to cost you or your business over a set time.
TCO = F + V
Where:
- F represents the fixed costs of the car. These would include your MOT and tax in addition to the agreed purchase amount (regardless of whether this is a lump sum or repayment plan). We call these fixed costs because no matter how much you use the car, that is how much you’ve committed to own and use the car and from the moment you sign on the dotted line, that cost is fixed.
- V represents your variable costs.These are the things that might vary depending on your usage of the car. For example, the amount of fuel needed or the cost of servicing along with any parts that might need replaced such as tyres, brakes, or clutches etc.
Using the TCO calculation, the car buyer can see whether paying a little extra and getting the servicing included in the fixed price is a better deal than the lower upfront cost with no servicing included.
How does this relate to the print industry?
When considering a print infrastructure for your business, there’s a little more to it. Acquisition, implementation, training, operation, consumables, maintenance and repair, upgrades, and end of life management, are all part of the overall cost.
While buying a new car might sound more exciting than purchasing a print infrastructure, the same principles of the TCO apply.
Take a look at the formula again:
TCO = F + V
- This time, fixed costs are just the upfront costs of the print devices (available on a lease or as a lump sum payment). This might also include implementation and training, but not necessarily.
- The variable costs might include paper, toner, servicing, maintaining consumable parts, power consumption, end of life management etc.
In order to make informed business decisions, it’s vital to consider how the variable costs will impact the TCO of a print infrastructure in the long-run.
Consider this approach:
You think you’ve got a great price on a new fleet of print devices for your business, and you’ve decided to handle the training, maintenance, paper and toner supply, repairs and servicing, usage, and end of life management in-house to keep the cost down.
However, all of these elements can take up a huge amount of time, resources, and budget, not to mention the indirect cost to your business if you run into unexpected issues. Calling out an engineer, for example, can incur a hefty charge and significant disruption to your business, and may result in you forking out for an eye-wateringly expensive replacement part. In some cases, parts and consumables, like toner, can end up outweighing the purchase price of your device altogether.
The Alternative: A Managed Print Service
A managed print service (MPS) is ideal for keeping variable and unexpected costs down because they are accounted for from the outset – your purchase/lease price will include a fully managed service.
By working with a provider that is contracted to proactively maintain and manage your printing, it’s in their best interests to offer high quality machines with a long lifespan and a low operating cost.
Implementation, training, and end of life management will all be included as standard, and consumables will be set under a fixed cost-per-copy price. Although your usage may fluctuate, it will be monitored to ensure you’re using your consumables effectively and getting the most out of your machine with minimum waste and therefore, lower operational costs.
Much like the car scenario, maintenance and servicing is essential for increasing the lifespan of a device and ensuring optimum performance. When you opt for a managed print service, your provider will proactively deploy trained engineers as necessary and any callouts, repairs and replacement parts won’t cost you an extra penny.
The Bottom Line
The cheapest price doesn’t mean the best value for money overall, so the day-to-day, variable expenses shouldn’t be overlooked. Cost predictability removes the guesswork from all the eventualities we may run into – both the expected and the unexpected – which is why a managed service may be the best way to ensure the longevity of your investment. It may be hard to put a price on peace of mind, but the total cost of ownership is a good place to start.
