Total Cost of Ownership (TCO) is essentially the process of calculating all the costs, savings and revenue from a product, throughout its entire lifetime. It’s a way of seeing the bigger picture and thinking long-term, so that you can make better purchasing decisions that help reduce costs and increase profitability.
We might not be conscience of it, but we often apply a TCO mentality in our daily purchases. Whether it is a new phone or a pair of shoes, whenever you elect to pay more for a higher-quality, more durable product – in the belief that it will last longer than a cheaper product – you’re essentially thinking about the TCO. You’re paying more in the short-term, to save money in the long term.
When it comes to trucks, calculating the TCO is a more complex process due to the many different variables that need to be taken into consideration. It starts with the purchase price, but then you need to consider its resale value and how much it will likely depreciate over the time you plan to use it. Then you need to consider where it will used and how? How much fuel will it consume and how much will this cost? How will the truck generate income and how much will downtime cost you?
When you know the TCO of a truck, you can make better decisions. For example, will an investment in driver training be repaid through improved fuel consumption? How will uptime be improved through preventative maintenance and service contracts, and what difference will this make to your bottom line? Often what seems cheaper in the short-term, can cost you more in the long-term.