A while ago, I wrote about a different way of looking at spending called TCO, or total cost of ownership. TCO tries to factor in the total cost of buying something, not just the sticker price. Companies do this because they are smart and have lots of people that can do mind-numbing math all day. Unfortunately, most individual people don’t, so we just look at the price tag, not the real and full costs of an item.
I went on a cruise with my family a few months ago…Within ten minutes of boarding, we were presented the Coke Deal by 5 separate cruise employees. The “deal” was that you would get unlimited Coke for $27 (per person) for the 7-day cruise. Without it, though, you’d have to pay about $2.50/drink for the cruise…
I found it interesting because it showed how the total cost of something is often WAY higher than the sticker price.
Buy a new house and you have to shop at a more expensive grocery store. Buy nice pants and you’ll have to get them hemmed. And on and on.
After my talk in Detroit a few weeks ago, I met up with friends in Ann Arbor and went out. There’s still smoking in bars there, so my clothes smelled disgusting afterwards and I took them to get dry cleaned.
Look how much it cost. I almost fainted.
First let me say that Indians hate two things more than anything: Paying for dry cleaning and, inexplicably, paying for shipping by postal service. I think dry cleaning is pretty self-explanatory with the ‘I-already-paid-for-this-damn-coat-now-why-should-I-have-to-pay-more- I’ll-just-stick-a-Bounce-sheet-in-the-pocket-and-let-it-sit-outside’ mentality. But for shipping, I really have no idea. I swear to god, I have asked my parents to ship me a t-shirt I needed, or some set of papers, and they turn into the most relucant people on earth. They will cook me 25 full meals or drive hours to attend some random event of mine, but they HATE paying for shipping. After 24 years, I still do not understand why.
Anyway, when I bought those clothes, I never factored in having to dry clean them. I just said, ‘Oh, it costs $50 for this shirt!” That was me just looking at the sticker price, not TCO. When you buy your car, are you honest about factoring in emergency repairs that you’ll have to make? (The ones that are, coincidentally, really expensive?) What about for your house? Or even for costs of the new neighborhood you’re moving into?
It’s not just about direct financial costs to you, either. For example, shipping bottled water has unseen costs to the environment. “Just supplying Americans with plastic water bottles for one year consumes more than 47 million gallons of oil, enough to take 100,000 cars off the road and 1 billion pounds of carbon dioxide out of the atmosphere,” the Chronicle wrote. (More fascinating analysis on the true costs of bottled water here, and my previous rant about bottled water here.)
Total cost of ownership is really hard and I usually fail at doing it. But when you try to factor in unexpected costs of your new purchase from day 1, you can be more accurate about how much something really costs.
Do you have any other examples of TCO?