Total cost of ownership: why the purchase price is only half the truth
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In the previous sections of this guide, we have addressed key fundamental issues regarding IT infrastructure in the company.
- What are the options for hardware financing: a comparison of purchase, leasing, and rental (Device as a Service)
- What are the different ways to deploy mobile devices? What do terms like BYOD, CYOD, and COPE mean?
- From a business perspective, which approaches to managing the device fleet make sense—the advantages of standardization versus customization?
Depending on how questions like these are answered, it can impact a company’s IT costs. This highlights the fact that IT costs today are much more than just hardware costs. For IT managers and decision-makers, the far more important question is: What are the actual costs of IT hardware when viewed over its entire lifecycle?
The concept of Total Cost of Ownership (TCO) can help answer this question. Below, we take a detailed look at the TCO concept. This article provides you with a framework for calculating the total cost of your IT equipment in your specific situation and identifying the strategies that are right for your business.
TL;DR - The most important facts about Total Cost of Ownership
- The purchase price of an IT device only covers a fraction of the actual total costs.
- A complete TCO analysis includes acquisition, operation, maintenance, support, energy, return and indirect opportunity costs.
- Typical misjudgements (e.g. underestimated maintenance and support costs) often lead to massive budget overruns.
- The TCO comparison shows: Rental models such as Device-as-a-Service offer clear advantages in terms of predictability, flexibility and overall cost control.
- Companies should integrate TCO calculations into procurement decisions at an early stage and use their own empirical values.
- Smart procurement is based on the entire service life - not just the purchase price.
Table of contents
Definition: What is Total Cost of Ownership?
The Total Cost of Ownership (TCO) principle helps determine the total cost of an investment. In the context of IT equipment, TCO refers to all costs incurred by an IT asset over its useful life, from purchase through disposal.
The basic idea behind the TCO concept is therefore the assumption that IT equipment incurs costs beyond its initial purchase price. When evaluating costs, one must not consider only the obvious expenses, such as the purchase price. Indirect costs for operation, maintenance, support, energy consumption, and lifecycle management can account for a significant portion of the total costs and must also be included in a holistic assessment.
Experience shows: Those who value IT hardware solely based on acquisition costs often massively underestimate the true financial burden.
The aim of determining the total cost of ownership is to
- make hidden costs visible
- Identify cost drivers
- Derive opportunities to exploit savings potential and reduce costs
- To enable a comparison of different strategies in terms of costs
Components of the lifecycle: How the total cost of ownership is calculated
In addition to the initial purchase costs, IT hardware and employee equipment incur additional costs throughout their lifecycle. The main cost drivers for IT equipment are:
1. Acquisition cost
The acquisition costs include all direct expenses incurred when purchasing a device. This also includes necessary accessories, installation services, and licensing fees.
Typical cost elements:
- Device price
- Operating system and software licenses
- Accessories such as monitors, docking stations, protective covers and screen protectors
- Rollout and setup services
When it comes to procurement and financing, many companies only calculate the basic price of the device. Additional costs such as accessories, licenses and set-up costs are usually forgotten. These can quickly account for up to 20-30% of the total amount.
Example: The purchase price for a high-performance business laptop is €1,200. In addition, there are costs for accessories and software licenses totaling €400. The total cost of ownership thus amounts to €1,600, which is 30 percent higher than the price of the device alone.
How can acquisition costs be optimized?
- Careful needs analysis and clear standardization of equipment can help avoid unnecessary additional costs.
- RFP processes and framework agreements help negotiate more favorable terms for bundled offerings.
2. Provisioning & Deployment
However, the equipment is usually not ready for use immediately after purchase. Additional costs—particularly in terms of time—are incurred to get the devices up and running. Accordingly, the “Provisioning & Deployment” category covers all the work required to get a new device up and running. This starts with installing security tools, includes installing various software, and also encompasses integration into the corporate network.
Typical costs for provisioning and deployment:
- Setup and configuration of the device according to the requirements of the company and the respective department
- Integration into the MDM environment and security systems
- Training for end users on correct use
Example:Based on our experience, setting upa standard laptop takes about 2 hours of work. At approximately €80 per hour in labor costs, the cost per device is €160.
What optimization potential is there?
- Automated rollout processes and pre-built images significantly reduce the setup effort.
- Standardized platforms facilitate MDM integration.
- Full-service providers like Lendis handle many tasks during setup based on specific requirements, such as MDM integration. This allows companies to outsource these tasks and avoid some or all of the associated costs.
3. Operation & Use
Even after purchase, IT hardware continues to incur costs during its use.
Running costs during use include, among other things, energy consumption, updates, and user support.
Typical cost components for operation and use:
- Electricity costs
- Regular software updates
- Helpdesk and support costs
- Training and further education measures
The view of hardware often ends with the physical device. Support tickets, inefficient energy consumption or additional costs due to outdated systems are rarely systematically evaluated.
Example: Aninefficient laptop results in higher energy costs than a modern model. Over a 4-year lifespan, this can lead to additional costs of approximately €200.
How can costs be optimized?
- Costs can be reduced by selecting energy-efficient devices, implementing targeted patch management, and systematically optimizing IT support.
- Regular investments in the latest technology also help reduce operational effort and, consequently, costs.
4. Maintenance & Repair
Technical malfunctions must be taken into account during normal operation. Experience shows that the failure rate increases significantly starting in the second or third year of use.
To ensure that systems remain operational at all times, regular maintenance and, if necessary, repairs are required. However, this ties up IT resources, and the time required for these tasks incurs corresponding costs.
Typical cost items for maintenance and repair:
- Repairs outside the warranty
- Spare parts
- Technician hours
- Shipping logistics for repairs
Example: Replacinga defective display incurs direct costs of €300–400. Having a sales representative who is unable to work results in additional productivity losses and potentially lost revenue amounting to several thousand euros.
How can costs be avoided or reduced?
- Extended warranties or maintenance contracts, backup pool strategies, and preventive maintenance can significantly reduce repair costs.
- At the same time, regular investments should be made in a modern, low-maintenance IT infrastructure.
5. Returns, Disposal, and Data Erasure
Toward the end of the lifecycle, many companies focus solely on new purchases. However, returns, data erasure, and environmental regulations continue to incur measurable costs and pose compliance risks. These include, for example, the effort required to decommission technical equipment securely and in compliance with the GDPR (specifically regarding data erasure). Disposal or resale also generally entail additional costs.
Typical cost components associated with device offboarding:
- Costs for secure data erasure
- Recycling fees
- Logistics costs for return shipment or storage
- Risk discounts for the return of old appliances
Example:Professional data erasurefor each device costs approximately €20–50. Improper data destruction can result in fines in the six-figure range.
How can costs be optimized?
- Integrated take-back solutions, certified data erasure services, and early planning for the recycling or resale of end-of-life equipment can help avoid or reduce costs.
- This is where service partners like Lendis stand out, as they handle not only procurement but also buyback, data cleansing, and subsequent remarketing.
6. Opportunity costs: Productivity losses due to downtime
IT downtime—such as servers that are unavailable or employees who are unable to work—leads to costs and lost revenue. Downtime must be avoided as much as possible, especially when it comes to hardware that is part of critical IT infrastructure. As opportunity costs, such indirect losses are also part of the overall costs and must be taken into account when calculating the total cost of ownership.
Typical cost elements:
- Delays in projects
- Missed sales opportunities
- Productivity losses due to waiting times for replacement devices
Why are opportunity costs often underestimated?
The pure repair costs are visible and therefore tangible for most people. The indirect effects on business development or employee satisfaction are not directly present and can rarely be quantified.
Example: According toa study, every hour of IT downtime in small and medium-sized businesses costs an average of $8,000–$20,000.
How can opportunity costs be reduced?
- Options for reducing downtimes include fast replacement services, preventive maintenance and transparent replacement device management processes.
Common Misjudgments in IT Procurement
Even when companies carefully select technology and compare prices, hidden additional costs often arise when risks are overlooked. So let’s take a look at some common miscalculations that many companies don’t have on their radar.
- Underestimating operating costs: Many organizations assume that modern IT hardware runs flawlessly and incurs virtually no ongoing costs. In reality, however, energy consumption, software maintenance, and user support add up to a significant expense over time.
- Underestimating repair and support costs: Defects that occur after the warranty expires, an increase in support requests for older devices, or a lack of replacement equipment are rarely factored into budgets realistically—even though they can place a significant strain on the budget.
- No contingency budget for unplanned replacement purchases: Sudden hardware failures, changing project requirements, or growth spurts often lead to short-term hardware needs. Without a contingency budget, such unforeseen situations can cause IT costs to skyrocket unexpectedly.
- Neglecting Disposal and Data Security at the End of a Device's Lifecycle: As a device reaches the end of its lifecycle, new responsibilities arise: GDPR-compliant data erasure, recycling, and compliance documentation. Companies that neglect these processes risk heavy fines and reputational damage.
We take a closer look at this topic in our blog post: Hidden Costs When Buying Electronics
Calculating TCO: How Companies Do It
A well-founded TCO calculation considers all costs incurred during the entire life cycle of an IT asset - from acquisition to operation and disposal.
What needs to be taken into account?
A complete TCO calculation includes both direct and indirect costs.
- Direct costs: purchase price, software licenses, accessories, implementation, maintenance, support, energy consumption.
- Indirect costs: Productivity losses due to downtime, training expenses, internal support time, and opportunity costs.
To get a realistic picture of the total costs and to calculate them, all costs must be tracked throughout the lifecycle of the respective IT asset.
Models for determining TCO
There are various models for calculating TCO. For example, associations such as the VDMA and the VDI have developed such models.
One of the best-known TCO models is the Gartner model. This model breaks down total costs into direct (budgeted) and indirect (unbudgeted) costs:
- Direct costs: hardware and software costs, operation, administration.
- Indirect costs: Unproductive downtime, inefficient utilization, and downtime of critical IT systems.
For more information on the Gartner model, click here:
➔ Details on the Total Cost of Ownership according to the Gartner Group
Highly mature companies often develop their own models based on specific experiences and individual requirements. These customized models enable tailored analysis by taking company-specific factors into account.
Example: Calculating the Total Cost of Ownership
A medium-sized company plans to provide laptops to 50 employees.
The following calculation shows the TCO over a 3-year period:
| Cost type | Individual costs (€) | Total costs (50 devices, €) |
|---|---|---|
| Acquisition (incl. accessories, licenses) | 1.600 | 80.000 |
| Setup and rollout | 160 | 8.000 |
| Operation (energy, updates, support) | 600 | 30.000 |
| Maintenance and repairs | 300 | 15.000 |
| Return and deletion of data | 50 | 2.500 |
| Opportunity costs due to downtime | 400 | 20.000 |
| Total costs over 3 years | 155.500 |
This example illustrates that the acquisition costs only make up part of the total costs. Operation, maintenance and indirect costs such as downtime contribute significantly to the TCO.
By taking all direct and indirect costs into account, companies can make well-founded decisions and realistically assess the profitability of their IT investments.
Our recommendation: TCO should not be used retrospectively to make investments look more favorable. TCO should be incorporated early on in IT budget planning and procurement strategy. Only then can well-informed, sustainable decisions be made.
TCO comparison: buying vs. leasing vs. renting
| Purchase | Leasing | Rent (DaaS) |
|---|---|---|
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How Device-as-a-Service (DaaS) Optimizes TCO
IT leasing models, such as those offered by Lendis, are often presented as full-service solutions. The goal is for the provider to handle the lifecycle management of the leased IT equipment. This allows the lessee to avoid internal IT overhead and, as a result, reduce the total cost of ownership of their IT hardware, among other benefits. At the same time, they gain a flexible, scalable solution.
The DaaS solution includes, among other things:
- Plannable monthly costs without high one-off investments (CAPEX becomes OPEX).
- Integrated support and replacement reduce operating costs and minimize downtime.
- Flexible adaptation of the equipment fleet in the event of staff growth or downsizing avoids capital commitment and downtime costs.
- Secure return and data erasure are included - compliance is made easier.
The following example illustrates this: A company wants to equip 50 employees with laptops (standard Office devices), with a planned term of 3 years.
Use our TCO calculator to determine the total cost of your IT equipment and compare purchasing with IT leasing.
Why renting is better here:
A direct comparison of IT leasing and purchasing shows that buying IT hardware results in high one-time costs, whereas leasing IT hardware spreads expenses evenly and makes them easier to budget for.
Differences also become apparent in day-to-day use:
- Operating costs such as support, maintenance and updates are additional when purchasing, whereas they are usually fully integrated in rental models.
- In the purchase model, repair and replacement costs put a strain on the budget as soon as defects arise—with renting, they are usually included.
- Opportunity costs resulting from downtime are significantly higher when purchasing equipment, as replacement units and processes are often unavailable or delayed. Rental providers, on the other hand, offer quick replacement solutions.
- Companies always stay up to date with the latest technology.Equipment can be replaced more quickly as needed, without having to make another investment.
The TCO analysis shows:
Although monthly payments may seem higher, renting comes out ahead when you look at the total cost of ownership:
- by reducing the effort required,
- greater predictability and
- lower indirect costs.
For businesses, this means that IT leasing not only offers greater flexibility but is also the more cost-effective option.
Plan smarter. Make better decisions. Procure more cost-effectively.
Looking at the total cost of ownership forces companies to deal with IT procurement in a more strategic, sustainable and efficient way:
- If you only compare the lowest purchase price, you run the risk of incurring massive hidden costs in the long term.
- The realistic assessment of all costs along the life cycle enables better planning, optimizes budgets and minimizes operational risks.
- Leasing models such as Device-as-a-Service offer a key advantage in this regard: they integrate many of the TCO-related aspects into a single service, provide cost transparency, and significantly reduce the burden on internal resources.
Well thought-out TCO management is a strategic success factor, especially for companies that want to grow, remain flexible and at the same time operate their IT in a modern and efficient manner.
Make sure your employees have efficient IT equipment and save costs at the same time.
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🡰 Read the article on Standardization in IT Procurement
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