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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.

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Thanks so much Kurt.
It will be great to see some more numbers next time, that should assist in creating a project proposal, if and when I get there.
This TCO is used for in-house purposes only, or does it get translated into the customer/client contract.
When I say in-house, I mean whoever is doing the TCO.
Do you use the same terminology in breaking down the costs for the client proposal, I guess is my question.
It’s a great basis for analysis of a project for sure.
thanks again.

Good points, Kurt. Yes, TCO is a nice animal. And TCO for ExpressionEngine with its current licensing model is definitely a big plus when compared to other commercial solutions.

May I add another animal in that zoo worth a visit? The “cost of inaction”. That’s the other side of the coin - overseen most of the time but (depending on the project) sometimes really essential. The cost of inaction is that sum that the client pays because he’s not switch while the world continues to change. The cost of inaction is often paid in form of a lack of efficiency and flexibility, higher maintenance costs and so on: Driving an old car results in more money for repairs, higher taxes, more fuel consumption, less availability (if the car is in repair). The same is true for websites that don’t use modern tools, that aren’t built around a customer-centric focus or that only can be modified by some highly trained specialist (that isn’t available if needed).

ExpressionEngine is a platform where the cost of inaction for not switching from an old system can easily be so high that the TCO part for EE is just a fraction of it. Let the client decide: Pay the TCO for the new system to get more flexible (and lower the cost of inaction in the long run) or pay the cost of inaction to have the old status quo cemented for the next years (and accept that efficiency will not get better).

I had clients where the mentioning of the cost of inaction showed them for the first time that they were already paying for a “solution” they took for granted (and “free”) and that the TCO for the new system would lower that cost (or even eliminate it).

Just my $.02
.Markus

This TCO is used for in-house purposes only, or does it get translated into the customer/client contract.

I think that would depend on the project, the market you work in, and/or the client, and/or your business model. I would think as a minimum, you would want some grasp of TCO in-house, and how you use that info beyond in-house would be up to you.

Quick examples. If you provided a turn-key website solution for your clients, then you might want to use the info to build into your marketing so that your clients would understand why you charge what you do. You might adjust your numbers to allow for your profit margin in your marketing and/or contracts.

Or, if you work in a large organization, you might need to budget out (forecast) the TCO for a future website built with 3 different solutions, and need to compare all 3 before your department’s decision-maker will give you the funding to get started. In this case the TCO would all be in-house.

Do you use the same terminology in breaking down the costs for the client proposal, I guess is my question.

We didn’t. We used this in-house as a way of discovering what our own TCO would be for providing turn-key solutions for our clients. We didn’t bring the client into the conversation about what our costs were.

That’s awesome Markus.

OK if I gab that and add it to the mix when I try and explain how we used to figure things next week?

Just go ahead, Kurt. You know I’m your biggest fan 😉

As a small business owner, I see the total cost of ownership as:

1. Purchase cost of EE and each module, plug in, etc.
2. Maintenance/support fees for each of the above.
3. Cost of designer/consultant.
4. Cost of coder, implementer for initial installations and ongoing upgrades. (Assumes owner’s not a techie.)
5. Hosting costs per year.
6. Domain name fees.
7. Cost of security services such as Verisign.
8. Cost of Paypal, Google Checkout, merchant accounts.
9. Cost of online advertising, SEO programs.
10. Cost of content, which may include editors, bloggers, writers, illustrators, message board administrators and bloggers.
11. Cost of insurance if you’re publishing potentially libelous information.
12. Cost of trademark, etc.

What am I missing? To me, the cost of not installing EE is academic once you’re into EE, and it can be over hyped in so many ways.

You can be sure that most clients calculate the total cost of ownership one way or another. To me, TCO for EE seems pretty high for non techies compared with some simpler solutions that are out there. You have to be a techie to install EE and make the most of it. Or you hire consultants.