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What is your first question when looking to make a big purchase? For most of us, the answer is likely: “how much is this going to cost me?”
Whether you are a buyer for a utility company, a foreman for a line crew, or a lineman buying your own gear, price is always going to be a consideration, but there is far more to cost to consider than just a price tag.
Buying for business is not that different from buying for your home. Sure, the lousy toilet paper might be cheaper, but is it worth it to inflict that upon yourself? Generic facial tissue might be alright for occasional use, but if you have a cold, your nose will thank you for investing in the good stuff. So it is with the more consequential purchases in life.
The bigger the purchase, the more long-lasting and widespread the impact of a wise or unwise decision (e.g. you got a screaming good deal on a lifetime supply of cheap toilet paper at the local warehouse club but now your friends refuse to come over to your house and your girlfriend has left you for someone with standards). Ultimately the real cost of any purchase is not the one paid up front but the total cost of ownership.
What is the total cost of ownership?
The concept of the total cost of ownership (TCO) is simple: what is the upfront cost plus all the additional associated costs for the lifespan of the product? Unfortunately, the TCO is always an estimate (which is just a fancy way of saying “educated guess”), but a well-informed TCO estimate can go a long way to helping you make better purchasing decisions.
The classic example of TCO most people encounter comes when purchasing a car. There are even online calculators to help with this:
Car A has an upfront cost of $15,000 and Car B has an upfront cost of $20,000 but then you have to pay taxes and registration and get insurance which tacks on another couple thousand. You are now out $17k for car A and $22k for car B. Car A still looks cheaper at this point, but wait, what about expected gas mileage and maintenance costs. It turns out it costs $3000 a year in gas and repairs to keep car A on the road but car B (being reliable and fuel efficient) only costs $2000 a year to drive. After five years of ownership, the total cost of ownership is now $32k for both cars, and after ten years, the cost of car A has now grown to $47k as opposed to $42k for car B.
The above is a generic example, and there are many more factors to consider. Maybe you go through cars more often than once every five years. Maybe you just really like blue instead of silver. These are valid considerations. There are a lot of reasons to buy one car over the other, but the important thing is to go in informed about what you will ultimately be paying.
Utility Equipment: An important investment
The thing to remember when calculating the TCO for your next big utility tool purchase (or any purchase for that matter) is that it is an investment, and the point of an investment is to see a return. For a business investment to be worthwhile, the return on investment needs to be greater than the value of the expenditure...
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