In general the Total Cost of Ownership (TCO) denotes more than the direct cost of purchasing an item.   It also includes services, maintenance, and other indirect costs.  For example, if you purchase an automobile your TCO would not just include the purchase price of your car but also oil changes, new brakes, gasoline, and more.  ROI, or return on investment, is perhaps a bit more self-explanatory.  The ROI tells how much money we would save or perhaps make after purchasing an item.

When it comes to purchasing business software it would seem that every vendor is going out of their way to boast about their TCO or their ROI.  They want to talk about how low their TCO is, because of their time/money saving features.  And then they brag about how switching to their software has such a high ROI that it will literally pay for itself over a period of time.

I believe the important question for your business as you investigate a new piece of business software is “what does all this mean for me practically?”  Let’s face it not all statistics are created equal.  Just because a vendor shows you impressive ROI numbers for their ideal case study, that doesn’t mean that your company will see the same results.  But, these are very important concepts so how do we find realistic figures for both TCO and ROI for our proposed implementation?

I think that rather than looking at a vendor’s TCO and ROI, it might be an even better exercise to compare their ROI to your current TCO.  Sure everyone wants to tell you how low their TCO is, but instead why not look at how high your current TCO is?  No one knows your current TCO better than you.  So how much is your current business software really costing you?  In other words, I suggest you start by taking a good long look at the cost of doing nothing. 

If your current software doesn’t support the latest operating system software, how much will it cost to either maintain your aging PC lineup or how feasible will it be to purchase new machines and then downgrade the operating system to match your business software?  What is the cost of that feature or features that your current software is missing in terms of additional labor needed to complete the given task?  Which new technology could generate new opportunities that result in increased revenue?

These are some really practical questions that you could answer along with others to create a realistic assessment of your own TCO.  But in order to know what you are missing, you have to know what’s out there.  A conscientious buyer will take the time to look intently at new software to realize which new features and technologies might be advantageous.