Low prices can be deceiving. While small businesses are easily tempted to buy cheaper computers, servers, phone systems, and other IT products, the long-term costs of these more “affordable” solutions are often out of sight and mind. Total cost of ownership (TCO), the total cost of a product throughout its entire life cycle, is rarely considered. How can you determine the TCO of an IT investment? This quick guide will give you some pointers.
Where is money seeping out of your business? Direct vs. Indirect costs
To determine TCO, you must first understand the difference between direct and indirect costs.
Direct costs are the clearly visible, concrete costs of specific expenditures. The sticker price of a PC, for example, is a direct cost. The labor costs of installing your IT network is a direct cost because you know the IT contractor’s fee before he installs your network. Traceable is the keyword. If you can easily trace the cost of an expense back to the product or service, then it’s a direct cost.
When it comes to indirect costs, calculating real expenses gets tricky. The costs of more intangible expenses (such as downtime, maintenance, and end-user operation) are easily overlooked. What’s more, these costs are usually unbudgeted/unaccounted for, which means they can slowly eat away at your business’s growth. While on the surface it may appear you’re enjoying a record year in terms of sales, indirect costs can undermine your success. In reality, you may be breaking even rather than reeling in profits like you think.
According to Network Alliance, a computer’s base price represents less than 20% of its lifetime TCO. As for the other 80%, maintenance, security and software updates, repairs, and technical support are some of the main contributors. When you factor in these costs, that cheap upfront price may not seem so affordable.
By the numbers: Head-turning stats to pay attention to
Indirect costs leave a hidden financial footprint that can sabotage your business’s success. Some surprising indirect IT expenses include the following:
- An unmanaged PC costs your business up to $5,867 per year. (Gartner)
- Employees waste 30 minutes a week dealing with IT problems. That adds up to two hours a month, and 24 hours per year — multiplied by the number of your employees. (Compass America)
- IT downtime results in an average of 545 hours of lost staff productivity per year. (Coleman Parks)
These are just a small fraction of the hidden downtime costs of your technology, which can serve as a wake-up call that spurs IT management and procurement change. Now, all you need to do is mitigate the costs.
How to lower your TCO for IT expenditures
Reducing your TCO is accomplished by simplifying your IT infrastructure and management process. Here are a few tactics you can implement today to eradicate hidden, indirect IT costs from your business.
Take an IT inventory
You can only fix a problem once you shed light on it. So ask your accountant to report your last quarter’s expenses for IT repairs, maintenance, and support. This will help you identify where wasted money is seeping out of your business.
Create processes to bring indirect costs into focus
Now that you’ve identified your indirect costs, you can develop the right processes to mitigate them. Schedule a set amount of labor at regular intervals (monthly, quarterly, etc.) to account for IT maintenance, security patches, software updates, employee IT training, and more. Scheduling enables you to plan and budget for these expenses in advance, bringing indirect costs out of the shadows where you can easily see your TCO.
Outsource your IT management
If digging into all the details sounds like too much work and too many headaches, outsourced IT may be the frustration-free solution you dream of. For example, Enteracloud’s Managed IT services replace your entire IT department. We handle your maintenance, updates, and all your IT needs while providing 24/7 help desk support. What’s more, our easy and transparent billing ensures you always know what you’re paying, eliminating the mystery of indirect IT costs instantly.
So are you ready to say goodbye to IT downtime, headaches, and hidden costs? Enteracloud ensures you focus on what really matters — running your business — while our experts create a seamless IT system you can rely on. Contact us.