Overview

Learn how to calculate the total cost of ownership and understand how “TCO” affects investing in new technology.

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Background

The definition of total cost of ownership

The cost of owning something goes beyond the purchase price. For example, though a used car might have a price tag of $5K, if it requires $10K in repairs in the first week, the cost to own that car is at least $15K, not $5K.

This total amount of money you need to own an investment — the purchase price plus all additional implementation and management costs — is what’s known as the total cost of ownership (often abbreviated as “TCO”).

It follows then that before purchasing anything — especially technology — you have to get a clear sense of all the costs associated with that investment. Otherwise, sound financial planning is impossible. You can’t make an apples-to-apples comparison versus alternative investments and don’t have the ability to prepare an accurate budget of projected expenses.

Strategy

Calculating the total cost of ownership

To calculate the total cost of ownership, you need to evaluate a technology investment from the point of view of how much it will cost to own over the course of one calendar year. To do so, think about the costs of your investment from end-to-end:

  • How much does it cost to set up?
  • How much does it cost to maintain?
  • How much does it cost to manage?

After that, you then need to factor in one of the most important costs of all: opportunity cost.

  • How much time does it take until I’m up and running?
  • How many resources do I need for implementation?
  • How much effort do I need to put into ongoing management?

The technology type determines the exact questions you’ll need to ask.

For example, let’s take a look at evaluating an investment in marketing technology, which is any product or service you use to improve and measure: how much customers spend when they visit (i.e. average customer spend), how often customers visit (i.e. average customer visit frequency), cost to acquire a customer (i.e. cost to implement marketing technology), and total return on marketing investment (i.e. money spent on marketing vs. money received in sales). A total cost of ownership calculation for marketing technology will take all of the following into account:

Software license

Cost to use the marketing technology software or platform — usually paid monthly.

Setup

Launch cost and time — usually paid up front.

Technology support

Cost and time for software management, which includes identifying, reporting, troubleshooting, and fixing intermittent software bugs — usually paid monthly.

Merchant success

Cost to receive assistance with implementation, which includes services like campaign planning, strategy, and custom reporting delivered according to a specific SLA (service level agreement, essentially response time) — usually paid monthly.

Time before live

Opportunity cost of waiting for the technology to go live, usually as a result of provisioning authorization from third-party service providers — always paid up front.

Switching costs

Cost and time to replace a pre-existing solution, plus the cost and time to replace the new solution if it fails to innovate — always paid up front and on the back end.

Corporate-level implementation

Cost (and opportunity cost) to assign a corporate-level manager(s) to implement the marketing technology — usually paid monthly.

Location-level implementation

Cost (and opportunity cost) to make sure individual location employees use the marketing technology effectively — usually paid monthly.

Enrollment and churn

Cost and time to acquire consumer users and make sure they remain active (i.e. does the solution actually work) — usually paid monthly.

All in all, before making an investment in marketing technology, make sure you ask questions about the total cost of ownership — not just the price. Probe into all the areas above during the purchasing process. Doing so qualifies you as an educated buyer, which will give you more negotiating power, and ultimately ensure that you make a smart and ROI-positive investment.

Implementation

Thanx minimizes total cost of ownership

Thanx is the marketing technology created with minimizing TCO in mind. At every step in the design process, we’ve grabbed opportunities to make implementing Thanx as quick and cost-effective as possible. A few examples:

Detailed marketing analytics without the need for point-of-sale integration or additional hardware

Without any loss in data quality, Thanx programs go live 7 days after signing a contract — no setup fees, no added time before launch, and no third-party provisioning required.

Consumer experience eliminates added steps at checkout

By making the user experience as simple as “pay as usual,” Thanx maximizes total program enrollment, minimizes program churn, and reduces time needed to train on-site employees.

1-Click Marketing Campaigns for campaign management

By automating personalized marketing campaigns through the use of proprietary data algorithms, Thanx maximizes sales growth while also reducing the time and resources needed to maintain technology on a weekly basis.

In-house, Silicon Valley product engineers

As a result of employing a United States-based expert team, Thanx remains far ahead of the innovation curve and ensures software uptime exceeding 99.9%.

advice

Learn more about Total Cost of Ownership

If you’d like to learn more about what questions to ask vendors that can help you figure out the total cost of ownership, please email us and we’ll get right back to you. We’re happy to help you figure out how to reach your goals for purchasing an ROI-positive marketing technology solution