The Importance of Total Cost of Ownership (TCO): Making Smarter Decisions in Automation
One of my earliest newsletter issues, "The True Cost of Software: Beyond Just the Price Tag," explored why focusing on price alone can be a dangerous strategy. Since then, months have passed, countless conversations have unfolded, and that belief has only grown stronger.
In fact, I’m even more convinced today that price matters, but it’s not everything—and this holds true not only for software but also for commodities (like enclosures) and automation machines.
If you’re responsible for running a business—or even just a piece of it—then you’ve likely found yourself in a position where you’re weighing your options before signing the check. And let’s be honest, the pressure to “keep costs low” is often overwhelming. But here’s the critical question: Are you looking at the full picture?
This is where Total Cost of Ownership (TCO) comes in.
What is TCO?
TCO is the complete cost of owning and operating a product or service throughout its entire lifecycle. It goes far beyond the initial purchase price and includes:
TCO forces you to think beyond the number on the quote and consider the long-term implications of your investment.
The Trap of Price-Only Decisions
Here’s a hard truth: Inferior products focus almost exclusively on price. Why? Because they can’t compete anywhere else. They’ll draw you in with a low upfront cost but conveniently ignore the hidden costs that will emerge down the line:
By the time you’ve realized the “cheap option” wasn’t so cheap after all, you’ve likely spent more than you would have on a superior product upfront.
The Other Extreme: Overcalculating TCO
On the flip side, premium products or solutions can sometimes overcomplicate the TCO discussion. These products often come with exhaustive calculations to justify their higher price point, but sometimes these calculations can seem disconnected from your reality as a business owner.
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Yes, the math might show a potential ROI or efficiency improvement, but can you reasonably achieve it in your unique environment? Will the benefits outweigh the upfront investment in a timeframe that makes sense for your business?
Asking the Right Questions
As a decision-maker, your role isn’t just to look at numbers—it’s to ask the right questions and find a reasonable certainty around the true TCO:
When you ask these questions, you start to filter out the noise. Inferior products won’t have satisfactory answers, while superior ones will give you the data you need to make an informed decision.
Finding the Right Balance
In my experience, neither extreme is the right choice. You don’t want to be blindsided by hidden costs, but you also don’t want to buy into exaggerated promises of premium solutions without verifying their fit for your specific needs.
TCO is all about balance—finding that reasonable certainty of whether your investment is worth it over time. Whether it’s a software, a commodity, or a service, always take the time to evaluate the big picture.
Final Thought
TCO is more than just a tool for budgeting—it’s a mindset. By focusing on TCO rather than just the sticker price, you empower yourself to make better, more strategic decisions for your business. And that’s how you stay ahead—by investing in solutions that truly add value, not just the ones that look cheapest at first glance.
What’s your take on TCO? Have you ever regretted a low-cost decision or felt validated by a high-value investment? I’d love to hear your thoughts and stories!
Here’s to smarter decisions in 2025,
– Kruno