Why marketers should care that total cost of ownership has become obsolete

Over the past decade, marketing as a discipline has become increasingly dependent on its tech stack. We’ve gone from being a supporting role to the sales function to being a domain anchored in data, automation, and an ability to drive revenue on our own. But this continues to require an increasing number of tools. 

And every time we look at a new tool to make our work more efficient we get the same question; What does it cost?

While the question seems fairly straightforward, it’s not the purchase price they’re asking about, it’s the total cost of ownership (TCO). Total cost of ownership is an IT term, and while it is still a useful metric, it is not nearly as important as it used to be.

The problem is, that it often leads to a narrow focus on the direct and indirect costs of owning a system, and ignores the benefits related to system ownership.

So many improvements to processes are stopped because of a failure to understand that the benefits of owning a system outweigh the cost—especially in marketing.

So, if you work in a marketing function and you want to make sure your team has the best tools at their disposal you need to understand why IT and finance will focus on TCO and how to shift the conversation to the benefits of ownership instead.

What is total cost of ownership (TCO)?  

Total cost of ownership (often abbreviated TCO) is the cost of buying a product or service plus the expenses related to deploying, maintaining, using, and retiring it over its entire lifecycle. 

Total cost of ownership quantifies what it costs to purchase a product not just from the point of purchase but across the entire lifecycle, which is why it is sometimes referred to as actual cost.

In most cases the total cost of ownership is made up of:

• Purchase price
• Implementation costs (including the cost of deployment, setup, and training) 
• Operating costs (including the cost of repairs, maintenance and upgrades)
• Service and support costs
• Security costs
• Retiring costs.

To give a more tangible example, let’s imagine for a second that we just purchased a new printer for our offices.

When you inform finance that you bought a printer, you most likely only told them about the purchase price. But the cost of the printer is actually more than just the cost of taking it out of the store (or having it delivered).

After you’ve brought the printer to your office, you need to plug it in to make it work, and that’s when the first hidden cost occurs. The electricity needed to power the printer. You need to pay for that as well.

And every time you press print a second hidden cost rears its head—you also need to pay for the printing paper. 

After a couple of hundred pages have been printed you get to the third hidden cost—the printer is out of ink, so you need to refill it. 

Now, these are just the costs related to the physical act of printing. 

When it breaks down there are repair costs, if firmware needs an upgrade at some point there are service and support costs (even if these just end up being time spent), and if you have a lot of employees there is likely going to be a training cost as well. Even if the training in question is just using five minutes to tell them which printer they need to use, where to find it, and how to refill the paper if it’s out, those five minutes will add up over time.

And then finally, when the printer gives out, hopefully after years of service, you need to get rid of it. And getting it to the retirement station will cost either time or money.

So, even if the solution, service or product you purchase is free, there are still costs related to it.

Total cost of ownership is dead long live total value of ownership

There is an issue with total cost of ownership, however. When you calculate total cost of ownership you add up all the expenses related to the product, but you ignore every single benefit the product or solution brings.

This means that you (or finance, who ultimately needs to green-light your expenses) will be left basing their decision on how much it costs, and not how much it will save or how much it will bring in.

For instance, if you are making the case that your marketing team should switch from a code to a no-code solution for a tool in your tech stack, there’s a good chance that calculating total cost of ownership will show that it’s a more expensive investment than what you already have. 

However, a survey found that organizations who use low-code and no-code technology experience a 60% reduction in the time it takes to develop and deploy projects.

So, instead of having the calculation in your business case focus on finding the cheapest solution to solve your problem—which is what TCO ultimately does, instead your calculations need to also include the total benefit of ownership (TBO) in an effort to find the solution or product that will have the biggest impact on your problem.

The result of expanding is the focus is called total value of ownership (TVO) and can be calculated like this:

How to present your business case for adding a new tool to your marketing tech stack

One of the issues many marketers run into when it comes to arguing the validity of new solutions, is that marketing tools are often quite expensive, and not necessarily because they have a high purchasing price, but because operating and maintaining them takes a lot of time, and usually they need employees outside of the marketing team to interact with them as well, which furthers the need for training.

This has historically meant that when IT or finance calculated the total cost of ownership for marketing products, the calculations had a tendency to look a little alarming.

Because of this, we need to be extra diligent in the way we present business cases for the tools we need, which is where a concept like total value of ownership comes into play.

Instead of focusing solely on the cost of a new tool or solution, we need to focus on the benefits it brings to our team in relation to the cost. It might be expensive, but will it make us more efficient in the way we manage tasks and projects? Will it make us plan and execute campaigns and promotions faster? Will it help us drive more revenue?