Total cost of ownership
The total cost of ownership is the financial principle to understand how much a product or service actually costs once you include both the purchase price and all of the associated costs, such as maintenance, servicing, labor, training, installation, and utility costs.
What is the total cost of ownership?
The total cost of ownership is a financial principle that helps in budgeting. It comes from the basic understanding that the price tag is only the beginning when it comes to the expense of owning a product or service.
It is easy to see this with the analogy of a car. The sticker price of a car might be $50,000, but by the time you factor in all costs for a new vehicle, it will have cost you much more—maybe even several times—than the sticker price.
You’ll need to have insurance for the car, which might cost several hundred dollars per month. The cost of fuel might be that much as well. The car will have scheduled maintenance check ups twice a year, and it might require oil changes almost as frequently. If any major repairs need to be done, that will add to the cost.
Many of you at this point might be thinking about other expenses associated with car ownership that haven’t been mentioned. This is one of the reasons that many accountants like to equate the total cost of ownership with an iceberg: 15% of the cost is the visible sticker price and 85% is all of the hidden costs.
Why is the total cost of ownership important?
Total cost of ownership is an important principle for budgeting. Not considering how much a product or service will cost in total over the lifetime of a contract will lead to poor decisions.
For example, unlike many of its competitors, Solink does not require long-term contracts and is camera-agnostic. That means that, unlike many VSaaS companies, Solink can work with almost any camera on the market, has lower startup costs, and you can cancel at any time.