Total Cost of Ownership

Total Cost of Ownership is one of those great business concepts often mentioned, even though not well understood. I’m not even sure I fully understand it, but I really like it. There’s something really cool about it that resonates with me.

Total Cost of Ownership (TCO) is one part history, one part projection and one part magic. To arrive at the TCO of something, we study history to look for patterns that led to our present experience, and use those patterns to make projections into the future. Then, in spite of our diligent study, preparation and our carefully laid plans, some bit of magic happens and our actual cost of ownership takes on a life of its own.

Let’s consider the TCO of running a website built in ExpressionEngine (EE). For this example, our time frame of ownership will be two years, and I’ll divide our costs into three categories: static, dynamic and magic.

Static Costs (these are the expenses we know about up front, and the ones we have the least control over):

ExpressionEngine - Commercial License: $249.95
ExpressionEngine - Commercial License Renewal: $39.95 (last 12 months)
24 Months of Hosting - Engine Hosting – Load Balanced Shared Hosting Plan S-1, paid annually: $216.00
Inflation - In my part of the world, inflation pushes up the cost of living an average of about 4 percent a year so I like to plan for inflation in any project that lasts longer than a year. I treat inflation as a static expense. There are good arguments for and against treating inflation as static and maybe I’ll explore those in a future post, but not today.
Software support - $0 (zero). Yep, it’s included with the EE license.

If I did my math correctly, the base static costs (add-ons not included) for a fully supported, commercially licensed and hosted ExpressionEngine website over a two-year period would be about $511.82, or about 71 cents a day. Stretch that out to three years and your static costs come to about $671.85 or just 62 cents a day in US dollars.

Any given website might need a larger hosting account, or add-on modules or have some other static costs associated with it, but if the static costs are around or below a dollar a day, that’s pretty good. I spend more than that on my mobile phone.

I should also mention EllisLab offers accumulative volume discounts on ExpressionEngine licenses starting at just three licenses. Make it to the “over 40 EE licenses” club, and your EE licenses are half off. If you’re buying over 25 Commercial EE licenses a year (you are building all of your clients’ websites in EE these days, right?) you can save over $3,000. More Info

Dynamic Costs (these are the expenses we know about up front and the ones we have the most control over):

I’m not even going to attempt to guess the actual cost of these today. I’m listing these to share the things I take into consideration when figuring the TCO for a project. You may have some you use that I’ve not thought about; if so, please share them in a comment.

Web 101 - New Client Education. If this is your first website, or your client’s first site, budget extra time to get up to speed. Think up your worst-case scenario time wise, and then multiply that by two and you’ll be in the ballpark.
Design - This can be anything from the value of your own time, to the cost of a gifted web designer or design team.
Configuration - The time it takes you or your professional developer to configure EE to run your site. This may also include things not directly related to EE, but that operate within EE’s template engine: your CSS, java-scripts, and html.
Learning - If you are doing anything at all for the first time with EE, it may take you some time to read the docs, experiment a bit, interact with the support staff in the forums and test your new functionality.
Updating EE - During a 24-month period there will be new builds and new numbered releases of EE that will improve the functionality and increase the possibilities of your website. You’ll want to anticipate time to take full advantage of the ongoing refinement and advancement of EE.
Importing/Transition Time - If you’re moving up to EE from some other website software, you should anticipate some time to transition your content and/or member data from another system over to EE’s.
Training - If you will have other people publishing content to your site with EE, then you should consider the time it will take to get others trained to use EE successfully.
Additional Software - EE plays well with other software, and your site may benefit from plug-ins, extensions, modules, expansions and even other complete software systems (e-commerce, ad-server, and other systems) that will run alongside EE in your website.
Scope Creep (The Silent Killer) - This is when the creative and well meaning customer keeps adding little things to the project’s deliverables, typically after the design and/or development has already started and after you’ve already set your price for the project.
Reporting Requirements - If you’re building this site for a client, or you simply have to justify why you’re spending all your time in front of the computer to someone special in your life, you should figure in some time for explaining yourself in a non-geeky way to someone else.

Magic Costs (these are the expenses we don’t know about up front and the ones we may have zero control over):

This is the stuff that you just can’t see coming at the beginning of a project. I’ve always called these “Magic” because these costs may seem to appear out of nowhere. For example, your blog might become a huge success and your blog’s traffic might suddenly increase to the point where you’re looking at excessive band-width charges if you don’t switch to a higher level hosting option.

Depending on your ability to clearly communicate your expectations to your customer and establish good customer and project boundaries, you might find that “Scope Creep” fits into Magic Costs. I would argue that scope creep is not magic though, because we should know about it up front, and have a plan in place to deal with it when it rears its ugly head.

This week I’ve identified the static, dynamic and magic costs that I consider when figuring out the Total Cost of Ownership for an EE website. Next week I’ll explore a way to help put some actual numbers with your dynamic costs. Dynamic costs can be some of the most difficult to estimate, but there are ways to get fairly close with these and I’ll be sharing the method I’ve been using.

Looking forward to meeting some of you at SXSW this weekend. Also looking forward to our first-ever software preview.