Make sure you understand TCO (total cost of ownership)

On the Edmunds website is a very slick tool that will allow you to calculate the TCO (total cost of ownership, which they’ve cutely trademarked as true cost to own) for a car you may be considering for purchase. The true cost to own tells you what the car will really cost you once you factor in things like depreciation, interest on your loan, taxes and fees, insurance premiums, fuel costs, maintenance, and repairs.

A similar calculation should be done when comparing the pricing of AMS systems. What I typically do for my clients is calculate the first year investment as well as the total cost of ownership (TCO) over five years. For AMS systems, the initial investment will typically include implementation consulting services, data conversion, and training as services you’ll need during the first year. So the initial investment will be higher than the future year investments.

It’s important to take this into consideration when comparing AMS systems, because often the first year costs for systems can be widely disparate but wind up converging over time.

Here’s an example of what I mean:

  • Product A has a first year cost of $110,000, with an annual cost of $25,000 for years two through five. Over a five year period, the product will cost $210,000.
  • Product B has a first year cost of $51,000, with an annual cost of $48,000 for years two through five. Over a five year period, the product will cost $291,000.
  • So while product B looks like a great deal in year 1 (HALF the price of Product A!) becomes less of a deal by year five.
This is obviously a very simplified example, but the point is that you have to consider the initial cost as well as the five year TCO in order to make fair comparison of systems.

About Wes Trochlil

For a quarter century, Wes has worked in and with dozens of associations and membership organizations throughout the US, ranging in size from zero staff (all-volunteer) to over 700. In that time Wes has provided a range of consulting services, from general consulting on data management issues to full-scale, association-wide selection and implementation of association management systems.

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