Total cost of ownership: look beyond the price tag
Why the cheapest quotation is often not the cheapest choice, and how to build a fair TCO comparison.
The purchase price is only the visible part of what an asset costs. Total cost of ownership (TCO) adds every cost the buyer carries over the asset's life.
What to include
- One-time costs: price, transport, installation, commissioning, training.
- Running costs: energy, consumables, operators, maintenance and repairs.
- Downtime: lost output while the asset is stopped — often the largest hidden cost.
- Service and warranty: only if not already in the price.
- End of life: removal and disposal, minus any resale or scrap value.
Avoid double counting
If the quoted price already includes a two-year service contract, do not add the service again. Write down what each quotation includes before you compare.
Compare on the same basis
Use the same analysis period and the same assumptions for every option. If costs fall in different years, a discount rate converts them to present value, and the equivalent annual cost lets you compare assets with different lives.
Use TCO in negotiation
A TCO breakdown shows the supplier exactly where its offer is weak — for example spare-part prices or response times — which gives you specific points to negotiate.
Try the TCO calculator to compare up to five alternatives side by side.