In addition to the initial purchase cost of acquiring new products or services TCO shows all the relevant costs of installing, using, maintaining and managing the product. In addition, more detailed TCO can use the opportunity costs and the disposal costs of the product.
Total cost of ownership can be a powerful sales and marketing tool in both B2B and B2C. The single most important benefit of TCO is the ability to quantify benefits and make comparisons.
– In B2C a cell phone provider can use TCO to highlight the difference between their plan and their direct competitors.
– In B2B machine and equipment manufacturer can use TCO to quantify all relevant costs throughout the product life cycle and pinpoint the differences among different competitive alternatives for the customer.
How to use Total Cost of Ownership to better market and sell your products and services?
7 Important Tips to Improve your TCO:
- Create a cost breakdown and identify all relevant cost categories throughout the life of the product and service from the time when the customer acquires your product or service until the product disposal. You can use a simple timeline to highlight the major points.
- Identify your competitive strengths. Just like any other marketing or sales tool, you’ll use TCO to market and sell your offerings to your target market so focus on the major benefits by converting them into tangible numbers. Your TCO analysis should reflect your unique selling proposition and competitive advantage. You don’t need to show that you are better at every single point but you need to show your main differentiator which is your selling point and it is relevant for your target customer.
- Choose your direct competitors for comparison. Generally for the most effective presentation you can use a simple table with the major cost categories and one column for each competitor for comparison. In addition you can use TCO for upsell if you compare different offerings by highlighting the benefits of the more expensive alternatives. In some cases especially in B2B TCO can be used for comparison of your offering and the customer current solution such as comparing your logistics program with the program currently used by your prospect.
- Educate your customers. Nobody can understand your business better than you. In many cases customers are not able to see the differences and real features and benefits until you show them the proof. By using TCO you can show your proof in an easy to understand way by using simple numbers. When presenting in person educate your prospects by explaining the cost categories you are talking about. Your prospect may not be aware of some relevant costs.
- Keep it simple. You proof is more powerful when your TCO presentation is simple and effective. Instead of going with detailed and thorough analysis you should focus on the major differentiators and present them in the simplest way possible. You can use more detailed analysis in B2B once you showed the major benefits and your prospect asks for clarification.
- Validate your claim. Depending on the product and service used in TCO there are situations where you should use validation such as third-party analysis or customers’ case studies. In more complex technical B2B sales and marketing you should use independent third-party proof such as analysis of an independent technical institute.
- Know your customer needs, wants and preferences. You need to really understand the customer in order to create a powerful TCO presentation by focusing on what really is important for your customer. In B2B sometimes you need to study the customer’s business model and understand the specific needs and processes before you develop and use your TCO.