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Total Cost of Ownership: What It Is, and Why You Should Care

total cost of ownership

When you’re shopping for a car, unless you’re one of the lucky few and money is no object, you consider more than the sticker price. You also weigh reliability (i.e., warranty and ongoing maintenance costs), gas mileage, resale value, the cost of options you want added, and other factors. Software solutions are no different. The capabilities matter most, of course, but when it comes to price, too many companies make the mistake of considering licensing cost alone – and even that can be trickier than it looks at first glance. What they should be looking at is the TCO, or total cost of ownership, which includes all sorts of costs that are often overlooked until the bills start coming in. And it’s important to look at these costs over a period of five or even ten years, since if you’ve made a good decision you’ll be using the software for an extended time.

Here are seven of the ingredients of the TCO to be aware of before feeling assured you know the “true” cost of a software solution:

1. Price

This seems obvious, but often isn’t. Does the vendor offer a perpetual license, or is it subscription-based? What will the cost be if you add more users or modules in the future? How much might the price be increased if and when you want to renew – once you’ve become locked into the solution with a multi-year contract?

Does the vendor charge by number of users? By square footage under management? Some other way? The cost differences between solutions can be great depending on how the price is calculated. For example, per user charges are notorious for adding up to big numbers, versus pricing based on square footage of the properties being managed (“capacity-based pricing”) which is more suited to commercial real estate.

2. Implementation

The true cost of implementation includes much more than a standard set-up fee a vendor might or might not charge. There’s no such thing as a “free” implementation. At the very least, you have to consider the extent to which your internal resources are tied up with the implementation. In addition, you need to know how long it will require. RealPage commercial property management software for example, aims for implementation and go-live in a matter of weeks – so your people can be productive in a very short time. But others can take months, or even more, exacting a big toll in productivity (which equals money).

3. Customization

Here’s where some vendors really stick it to you. They’ve sold you on their standard solution, but you start to realize the real cost when they begin the necessary tailoring to fit your processes and preferences. Know in advance whether customization is something you can handle in-house without a big burden, or whether the vendor’s experts will have to do it and charge you big bucks for their time.

4. Add-ons

What comes standard with the solution, and what do you have to pay for as add-ons? Be clear about what you need up-front, then add up what you’ll be charged for as “extras.”

5. Migrating datatotal cost of ownership

How much effort is involved in migrating your data into the new system? Some solutions feature easy, automated data migration. With others, it’s cumbersome, slow, and if consultants are involved, expensive. Ask about this before settling on any property management solution. Does the data need to be converted to another format, scrubbed, or consolidated with other data? Who will do this? And if it must be done by the vendor, what will it cost?

6. Training

This involves not only charges for initial training, but ongoing training as well. A solution that’s harder to learn and use means a high cost over time cost in training of new people who come on board. Turnover is inevitable, and there’s a huge price to pay for having software that takes several days or even weeks to become productive with versus a few hours. Is the training onsite or offsite? Is it packed neatly into online, step-by-step sessions that can be mastered quickly? You want your people to spend as little time training and as much time getting things done as possible.

7. Maintenance

Vendors typically charge for ongoing updating and maintenance of their software along with addressing software conflicts and other problems, and charges are sometimes based on varying levels of support. You’ll have to decide what level of support you’re willing to pay for, depending on the abilities of your internal resources.

Yes, this is a rather long list of things to consider in calculating the total cost of ownership. But if you ignore it and simply consider the basics, there’s a good chance you’ll come to regret it. Ready to dive deeper into some of these TCO ingredients? Learn about commercial real estate property management software that can help you make the best decisions for your company.

Author and Contributor

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Based in New Orleans, Guy Lyman is a professional writer with over 25 years’ experience writing about multifamily and commercial real estate. Lyman is a frequent contributor and writer for the Property Management Insider blog.

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