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Total Cost of Ownership (TCO)
The purchase price of a notebook is only one part of its costs. Setup, support, energy, outages and, in the end, retirement all add to it. Total Cost of Ownership makes these costs visible. Here you will learn what is included and why residual value changes the calculation in the end.
In brief
Total Cost of Ownership (TCO, in German: Gesamtbetriebskosten) is the sum of all costs a device or system causes over its entire life cycle – from purchase through operation to retirement. The metric helps compare purchase decisions and procurement models fairly. In IT, data erasure, disposal and the proceeds from resale are also part of the calculation.
What is part of Total Cost of Ownership?
The concept was popularized in the late 1980s by the market research company Gartner for IT workplaces. The basic idea: a low purchase price can become expensive if operation and support cost a lot. TCO therefore distinguishes between direct and indirect costs.
| Phase | Cost examples | Type |
|---|---|---|
| Acquisition | Purchase price, licenses, accessories, procurement effort | direct |
| Provisioning | Configuration, installation, rollout | direct |
| Operation | Energy, maintenance, repairs, support, software updates | direct |
| Downtime and productivity | Working time lost to disruptions, slow old devices | indirect |
| Decommissioning | Data erasure, transport, disposal, documentation | direct |
| Recovery | Proceeds from resale or buyback | lowers the TCO |
Be careful with the abbreviation: TCO also stands for the sustainability label TCO Certified, which has nothing to do with costs.
Calculation example without market prices
A simplified example with placeholders instead of prices: a company compares two paths for 100 notebooks.
- Option A – three years of use: TCO = purchase + operation over three years + retirement − proceeds from resale.
- Option B – five years of use: TCO = purchase + operation over five years (with more repairs and downtime) + retirement − significantly lower proceeds.
For a fair comparison, divide the TCO by the years of use. It often turns out that newer devices fetch a noticeable Residual value, older ones hardly any. Whether this offsets the higher purchase costs depends on your own numbers. Why written-off devices can still be worth money is explained in the guide Useful life and residual value of laptops.
What companies make of the TCO
- Define the refresh cycle: The TCO shows after how many years a replacement pays off (Refresh cycle).
- Compare procurement models: Purchase, leasing and Device as a Service can only be compared fairly with a TCO calculation.
- Plan retirement early: Those who plan data erasure and recovery from the start avoid unplanned costs and secure proceeds.
- Include sustainability: Longer use or resale reduces the need for new devices. This also affects the CO₂ footprint.
You will find more thoughts from the finance department's perspective in the article Used IT hardware for CFOs.
Relation to Second IT
Second IT advises companies on inventory analysis, market valuation and IT return. Second IT buys retired devices at market-based prices, with database-driven price determination. Pickup, certified erasure and documentation come from a single source. You receive an offer in 48 hours on average. More on consulting on the IT lifecycle.
Frequently asked questions about Total Cost of Ownership
How is the TCO calculated?
You add up all costs over the planned period of use: purchase, provisioning, operation, support and retirement. You subtract any proceeds from resale at the end. For comparisons, divide the result by the years of use or the number of workplaces.
Is disposal part of the TCO?
Yes. Data erasure, transport, disposal and documentation cause costs. If devices are sold instead, proceeds may result at the end, which lower the TCO.
What is the difference between TCO and acquisition costs?
Acquisition costs only cover the purchase. The TCO looks at the entire life cycle, including operation, outages and retirement. A cheap device can therefore have a higher TCO than a more expensive one.
What is the difference between TCO and TCO Certified?
Total Cost of Ownership describes the total costs over the life cycle. TCO Certified, on the other hand, is a sustainability label and has nothing to do with costs. The same abbreviation often leads to confusion, so it pays to look at the context.
What do companies use the TCO calculation for with IT devices?
The TCO shows after how many years a replacement pays off, that is, which refresh cycle fits. In addition, purchase, leasing and Device as a Service can only be compared fairly with a TCO calculation. This way, retirement is factored into planning early on.
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