Total Cost of Ownership (TCO) and ROI of Business Communications

Total Cost of Ownership (TCO) and ROI of Business Communications

05:05 03 November in Case Studies

calculatorWhen making the decision to research and eventually deploy a Unified Communications solution, many numbers and corporate buzz phrases will be tossed around to help with decision making. They’ll include initial investment, cost over lifetime, length of life cycle and more.

Tune Out The White Noise: The Figures That You NEED

In the long term, the two numbers that matter most and require the most calculation for business are Total Cost of Ownership (TCO) and Return on Investment (ROI). Basically, a calculation of ROI leads to your business’s ability to determine TCO.

Cause And Effect

Calculating ROI dictates a reasonable total cost of ownership for your endeavor. In essence, the calculation of how much you can make back will indicate how much you can reasonably afford to spend.

Let’s Talk About ROI

Telecom ROI is about more than just spending money to make money. The concept of Return on Investment applies to more than just tangible items or production of goods and services. The most basic understanding of ROI, for instance, would include a purchase of machinery to ramp up production while calculating the potential for higher sales after the investment.

ROI is much more complex than just that. It is also affected by calculating the value of increased productivity and other intangible but often quantifiable measures for the business.

Making More By Spending Less

Employees who manage more calls because of a better call routing system may not be directly generating more income, but they are increasing productivity, output and turnaround time. Meanwhile, Unified Communications that allow seamless video conferencing cut down on travel. Again, they are not inherently generating higher sales, but they greatly reduce expenditures and turn around time for solutions. The business saves by not spending, and the ROI of the purchase goes up substantially.

Getting Your First Number

ROI is an estimate, but it is derived by calculating the man hours that could be saved, the travel that will be eliminated, the adjusted staffing levels AND the potential for increased production. Subtract current levels from the potential number to get the ROI for the purchase.

Turning ROI Into TCO

Once a business can determine potential ROI for implementing a Unified Communications system, they can then set the budget based on if the ROI makes the solution worth implementing. The ROI is the cause for setting the budget. The TCO is the effect.

Put another way, the ROI sets the incentive to buy while the TCO dictates what can be purchased.

How To Figure Telecom TCO

TCO is calculated based on a number of factors including initial investment as well as cost of maintenance, necessary upgrades and cost of expansion. It’s usually based on the life cycle of the device, which means how long until it will need upgrade or replacement.

Life cycles for telecommunications technology are usually estimated to be between 3 and 6 years. TCO would be calculated by multiplying the yearly maintenance, support and upgrade costs by the number of years in the life cycle and then adding the numbers to the initial investment. The total is your TCO.

Keeping It Balanced

If the number that you come up with for TCO is less than your ROI, then the system that you’re looking at may be a viable alternative. The most opportune decision will have a high ROI and a low TCO.

While examining potential investment, remember that telecom solutions are an investment that can pay for themselves by saving money and increasing productivity above and beyond the increased sales that often come along with them.

For assistance in calculating these figures, please contact one of our Zultys Sales Professionals.