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How to Calculate the Total Cost of Ownership for Utility Billing Systems

Man using his computer to calculate the total cost of ownership for his utility billing system.

Have you ever experienced buyer’s remorse? You know that sinking feeling in the pit of your stomach that makes you question whether you made the right choice?

It’s a common feeling, especially when trying to analyze Utility Billing Software. Luckily, we have some tips on how to preemptively avoid buyer’s remorse… and it’s as easy as performing a simple calculation.

Total cost of ownership is one of those concepts that can be hard to get your head around, however it is a CRUCIAL step in really analyzing operational efficiency and avoiding buyer’s remorse to ensure that you’re getting the most value as possible out of a new system.

But where do you even start?

Well, it’s important to understand what Total Cost of Ownership is.


Total Cost of Ownership (TCO) is simply just looking at how much any given piece of equipment (or in this case software) will cost your organization throughout the life of that system.


The key though is to take a full, comprehensive, and expansive view of the system to see how much it will cost you.

How To Start Calculating Total Cost of Ownership

Calculating TCO for a Utility Billing System can be a significant time expense for a business, which is why it's important to have a process defined going into it.

It’s especially important when searching for a new Utility Billing System. With so many options, weighing the pros and cons of each system is the start of comparing systems apples to apples.

There are several factors to consider when calculating the TCO for your Utility Billing System, and some of them you may have never considered before.

TCO is not only the price tag you see upfront, but the additional long-term cost of labor, maintenance, and operational costs that don't always present themselves in the initial purchase price.

We’ll go deeper on each of those categories throughout this post, but we put together an easy to remember equation that will help you have a framework for performing a Total Cost of Ownership calculation.

Total Cost of Ownership = Purchase Price over the expected Life of the System + One Time Implementation Costs + x(Usage Cost +  Operational Costs + Maintenance Costs). Variable equals the number of years for these costs.


TCO Equation Final


Factor 1: The Purchase Price

The purchase price of your Utility Billing System is probably the easiest number to find. It simply includes the cost of the software, hardware, and any associated licensing or user fees.

When you're purchasing your new Utility Billing System, this is typically the bottom line of the quote that a company shows you when trying to sell their platform.


This initial purchase price will often include a list of items such as:

  • Base level software subscription fees
  • User licensing fees
  • Additional software module fees
  • Server costs
  • Implementation costs
  • Training costs
  • Customization costs
  • Setup fees
  • Managed services agreements
  • Credit card readers
  • Printers
  • …. And anything else they may throw in

Depending on your provider, most of these items may be considered when a company presents the upfront purchase price for their platform, but there's always the potential that there may not be items included, or that additional items will get quoted during implementation, after software agreements have been signed.


It’s always important that you do the research to create a checklist of your specific needs to see if these items should be included in the initial purchase price.

It’s also incredibly important to not have sticker shock at the bottom line of a quote. This is the part where most people stop their analysis…but you’re not yet comparing apples to apples.

Purchase prices are easy to compare but they don’t tell a full and complete story. To have a full understanding of the TOTAL cost of ownership for a system, you need to next look into operational costs.

Factor 2: Implementation Cost

Have you ever tried to put together a piece of flat pack furniture where the instructions were frustrating cryptic cartoons and you’re not exactly sure they included all the pieces in your box?


Where’s the screwdriver.... do I need a screwdriver...? Will a hammer do... or do I need that random metric Allen wrench set? And then if you don’t put it together JUST right, then the whole thing comes crashing down.


Software implementations can sometimes be like putting together that bookshelf... frustrating, confusing, and not worth the long-term investment without the proper setup instructions and guidance.


Implementation of a software is one of the most important components for setting up any users for long term success. But often, so many companies try to quickly rush through the process or even take a “one size fits all” approach to implementation.


That not only sets you up for immediate buyer’s remorse but can ultimately impact your total cost of ownership.


When preemptively figuring out a true implementation cost you need to include the cost of setting up the system as well as training your users on how to use it. Depending on the complexity of your processes, the implementation process can be a short or a long-term process... it all depends on what is included with the systems you are analyzing.

Don't let a cheaper immediate price point cause further operational costs in the future by needing to provide additional training or fix incorrect setups.

Some companies offer a long-winded implementation process that can consume much-needed launch time when it comes to your billing needs. However, a fast implementation doesn't necessarily mean a smooth implementation or a good one.


Double check to see if the Utility Billing System offers a description or timeline plan for their implementation process. It's nice to be able to see exactly what they'll be doing with a time estimate attached. Extra brownie points if they describe what each step will entail.


Sometimes a Utility Billing System will have an outlined implementation process with a certain number of steps or phases. This would be ideal to look for to be able to see the bigger picture when it comes to your platform's implementation.


Being able to see the full picture for your implementation process can help you better account for your TCO. A good successful implementation can save you time and money later!

Factor 3: Annualized Usage Costs

There are some costs that factor into the total cost of ownership for a utility billing platform that may not be reflected in the initial purchase price of a system.

We call those usage costs, or costs that it takes to run key components of the system on a yearly basis.


For Utility Billing operations, these costs can often include things like:

  • Printing and billing costs
  • Postage costs
  • Customer communication costs
  • Costs for data storage
  • Electricity costs (if on-premises)

We’ll get into operational costs in the next section, but usage cost and operational cost often go hand in hand because the more time your users and staff are spending on any given operational task, the most costs it will incur in labor.


With usage costs however, we look at the costs of the actual components that your users will be interacting with.


Often you will have recurring costs that will show up each billing cycle, such as how much it costs to print the bill or the purchase price of envelopes or even the cost stamps for your bills.


All those costs go into the total cost of ownership with a billing system and should be factored into your solution, especially if your potential billing system offers managed services to help with billing operations or bill presentment.


For further complexity, there are also ways to offset usage costs, such as a robust customer portal and eBilling or even outsourcing various components to a single supplier. So, this variable often fluctuates.

Factor 4: Annualized Operational Costs

Again, the goal of a TCO calculation is to get the FULL picture of what a system costs.

And one of the most hidden costs out there should be one of the most important to consider…. Operational Costs.


Operational costs are how much time and energy it takes to use the system.


This is one of the harder and most time-consuming measurements to calculate. To start you need to figure out your TOTAL employee costs for a year, which includes not only their salary but also their benefits.


You then divide that figure by the number of hours that person works each year to give you your TRUE hourly employee cost.


Now, you need to see how efficient your billing system is on their time.


Graphic Image 4


Look at how long it takes for them to perform common tasks. We’ve found it’s helpful to group tasks into different types, such as customer calls, bill creation, utility connects, utility disconnects, etc.


From there it’s all about just watching the clock. Be sure that if you’re measuring something like a customer call that you’re including not only the time on the phone, but the time to do the action associated and document the process.


If your user is working through the end of month billing cycle, include any time on the phone with bill printers or even time spent stuffing envelopes for your bills to go out.


Time is always someone’s money, and that should factor into your decision for a Utility Billing System as much as the system itself.


The key to measuring operational costs is to get a true sense of how much time your software is saving you.... or costing you.

It’s important to note that this kind of measurement is not intended to micromanage any employees or try to rush the human element of customer service. Calculating operational costs should always be based in finding ways to make the tasks more efficient and easier on the user.


Communication to the users of your task and what you’re trying to measure is key to not only establishing trust but also helping you get accurate time measurements for these tasks.


Factor 5: Annualized Maintenance Cost

Do you want to be in the utility business or the IT business? With the wrong system, you may be spending more time and resources on just maintaining a system than running your business.

System maintenance costs includes not only the costs of any system repairs, but also the cost of software updates, hardware repairs, and personnel costs to make sure it’s all done correctly.

The cost of a Utility Billing System, when maintaining yourself, can really add up. Keeping up-to-date servers, secure data storage solutions, peripherals and even electricity costs combine with the cost for an IT person can all factor into the total maintenance cost for a potential solution.


If you’re looking to build or host a solution yourself, that doesn’t often include the need to build a system for redundancy and resiliency or architecting your system with built in duplication that backs up your customer data and prevents system down-time.


When trying to analyze the maintenance costs for these systems you can ask the following kinds of questions:

  • What is the typical life span of this piece of equipment?
  • How difficult is it to source physical parts for this piece of equipment?
  • What are the most common user issue tickets you receive?
  • What is the warranty of this piece of equipment?
  • What happens if the system goes down when trying to run my bills?
  • What does your support structure look like? How many agents are available for my needs?
  • What are the typical electrical costs associated with running this piece of equipment?

Luckily, most modern cloud-based Software as a Service (SaaS) Utility Billing Systems build in these types of maintenance costs into your monthly user licensing agreements, so all you must do is focus on creating and maintaining your customer information, not worry about all the work it takes to maintain your system!

One major benefit of a SaaS system is that the maintenance cost is virtually zero.

But be careful. Some "cloud-based” solutions are systems that were legacy on-premises solutions that are simply putting their older software onto a cloud-based server.


Not only does this not allow the system to scale and grow but it can still incur similar kinds of maintenance costs related to server up-keep and data backups.


Asking your potential solution is there are any hidden fees, such as a “system maintenance fee” or “server maintenance fee” that may not be reflected on the quoted price of the system can be helpful in rooting out other hidden maintenance costs. 


Another way to help root out exactly what kind of cloud-based system you are analyzing would be to ask about the architecture of the system and have an IT professional review if you need. You would be surprised at what potential maintenance issues could come up.


Additionally, it’s always useful to look outside of your billing system to put together

Adding It All Up

Pheeeeew. That was a lot of work just to get all our factors together.


But hopefully now we can put all these pieces together in a format that allows you to understand the FULL cost of a system. It’s a lot of work, but this should give us a full understanding of the total cost of ownership for this piece of software.


Let’s look back at our TCO equation:

Total Cost of Ownership = Purchase Price over the expected Life of the System + One Time Implementation Costs + x(Usage Cost +  Operational Costs + Maintenance Costs). Variable equals the number of years for these costs.linkedin

TCO Equation Final


It’s important to note that before we didn’t talk much about the time-based components, which is yet another facet to figuring out the total cost of ownership of a Utility Billing System.


Typically, these systems last decades, so that should be factored into this. Once you have the annualized costs, simply multiple that by the number of years you’re expecting to keep the system to get a total time based ownership estimate.  


Similarly, if you’re expecting to keep a system for ten years you can multiple the purchase price over that period to get an accurate yearly cost as well.


Hopefully though, this begins to put you on the right track to understanding and figuring out for yourself the Total Cost of Ownership for your Utility Billing Software.


We also have plenty of evidence backed research on operational costs, usage costs, and maintenance costs for various utility billing processes and systems.


If you are interested in a free Total Cost of Ownership Analysis on your current system, our Account Executive team can help walk through all the factors and perform a free TCO analysis of your current processes and help identify opportunity to make your processes even more efficient.