What is Total Cost of Ownership?
by Nicole Michaud
5 October, 2015 04:19
**An earlier version of this post included inaccurate information regarding Total Cost of Ownership and has since been corrected**
When deciding which light bulb to purchase, the cost of the bulb can be a major factor in your decision. But the cheapest bulb on the shelf might not always be the least expensive option in the long run. The truth is that the bulb you buy will determine your cost in the long term. Some bulbs cost more to use, operate, and maintain than others. These costs, all together, are known as your total cost of ownership. Total cost of ownership (TCO) is a financial estimate intended to help consumers and business owners determine the direct and indirect costs of a product. In terms of lighting, the cost of ownership takes into account the upfront cost of the product, the hours used, kWh rate, and the rated life of the light bulb.
The retail price of the bulb is your initial or upfront cost. Compact Fluorescent (CFL) and incandescent bulbs typically have a lower upfront cost than LED bulbs. In most cases, an incandescent bulb will cost approximately $1, a CFL around $2-$3 and an LED at $8-$10. Based on just the upfront cost, incandescent and CFL bulbs appear to be the most economical choices when compared to LED bulbs.
The second component in determining the cost of ownership is the operating cost. The yearly energy cost is determined using the following formula:
Therefore, the operating cost of a bulb for one year is as follows. Keep in mind, the cost of the bulb is determined by factors including the initial cost plus the rated life.
LED bulbs have much lower operating costs than their less efficient counterparts and can save consumers hundreds of dollars over the life of the bulb. For example, operating a 60 watt incandescent bulb for one year will cost $22 based on $0.11/kWh and 56 hours of use per week. A 60 watt equivalent CFL will cost $7 a year to operate and a 60 watt equivalent LED bulb will cost $10. The Cost of Ownerships shifts when looking at these numbers over 5 years: Incandescent- $105, CFL- $27, and LED- $21.
With the adoption of energy efficient LED lighting by many consumers, it is becoming more important than ever to explore the total cost of ownership for your home or business lighting. Over the next few weeks, we’ll look into other aspects of Cost of Ownership including:
If you have other questions, please contact one of our certified Lighting Specialists at 1-888-455-2800.