Total cost of ownership (TCO)
Total cost of ownership is everything a piece of equipment costs across its whole life, not just its purchase price, less whatever it is worth at the end.
Total cost of ownership is everything a piece of equipment costs across its whole life, not just its purchase price, less whatever it is worth at the end.
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Also called: TCO, lifecycle cost.
Purchase price and obvious running costs get counted. Four categories routinely do not, and they are often the difference between two options that looked equivalent.
Downtime. Equipment that is unavailable has a cost even when nothing is being spent on it. Training. Time spent learning to operate and maintain it, repeated with staff turnover. Storage and transport. Space, moving it between sites, insurance while idle. Disposal. Regulated disposal, data destruction, decommissioning — sometimes a substantial negative at the end.
TCO most often reverses two conclusions. The cheaper purchase with higher consumable or servicing costs loses over five years — printers, coffee machines and low-end power tools are the classic examples.
And buy versus rent turns on utilisation. Owned equipment carries its full cost whether used or not; rental converts that to a per-use charge. Below a certain utilisation, renting is simply cheaper, and you cannot find that threshold without knowing both TCO and actual usage.
TCO calculated at purchase is a forecast built on assumptions. TCO calculated from three years of recorded servicing, repairs and downtime is a measurement, and the two are frequently far apart.
This is the practical argument for per-item cost tracking: it turns the next purchase decision from an estimate into an observation.
TCO = Purchase + Operating + Maintenance + Downtime + Disposal − Resale value
A £20,000 machine costing £2,500 a year to run and service over 6 years, with £1,500 disposal and £4,000 resale, has a TCO of £32,500 — about 63% more than the purchase price.
Buying on purchase price alone systematically favours equipment that is expensive to run, and the difference only becomes visible in year two, when the decision cannot be undone.
Itefy accumulates purchase value, maintenance and repair costs against each item, so cost reporting reflects what equipment actually cost rather than what it was expected to. Read more.
Depreciation allocates the purchase cost across accounting periods. TCO is the real total outlay including running, servicing, downtime and disposal, less resale. Depreciation is an accounting convention; TCO is a business number.
The expected useful life, so options with different lifespans can be compared honestly. Comparing a five-year TCO against a three-year one flatters the shorter-lived option.
Equipment depreciation is the accounting method for spreading an item's cost across the years it is expected to be useful, rather than expensing it all at purchase.
DefinitionAsset lifecycle management is the practice of managing equipment deliberately at every stage — from specifying and buying it through use and maintenance to disposal.
DefinitionEquipment downtime is time during which equipment is unavailable for its intended use, whether because it has failed or because it is being serviced.
DefinitionA service history is the complete record of maintenance, repairs and inspections carried out on a specific item, with dates, work done and cost.
DefinitionUtilisation rate is the share of available time that a piece of equipment is actually in use, expressed as a percentage.
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