Should I get it?

If you’re like most small to medium-sized business owners, you’re getting pitched all the time to buy new hardware. Some of the time, making the purchase is appropriate. Some of the time, it’s not. But how can you know?

Since it’s not your specialty, many business owners really aren’t quite sure. At first blush, new equipment is enticing. Who wouldn’t want bigger, faster, sexier equipment? Unfortunately, that’s hardly justifiable – especially in this economy. Instead, its ROI (Return On Investment) should dictate the decision.

In order to make the right decision, you need to answer these three questions:

1. What is the benefit to you, and
2. What will it cost you, and
3. Do all the benefits outweigh all the costs?

For this purchase to make sense, there must be a clear benefit, and that must be compared with the long-term cost for the equipment, such as the 5-year Total Cost of Ownership (TCO). This is not just the initial cost, but includes many other costs and factors, such as taxes, shipping costs, installation, configuration, training, conversion, ongoing support, potential learning curve (reduced work being done) and the cost of capital, less any direct reductions you may qualify for. Then, it’s important to quantify all the benefits you will receive over the life of the equipment. Now compare the two – the scale will gravitate towards the right answer. Now that’s ROI-based (Return on Investment based) purchasing.

As an example, one of our clients received an unsolicited bid for new hardware. The initial cost was “only” $80,000.00. My client was interested in making the purchase and asked my opinion. First, I calculated the more important 5-year TCO, and it was (to their surprise) just shy of $200,000.00! Second, I asked them “exactly what problem(s) will this new equipment solve for you?” When they all stared at each other with an amazed look on their faces, they got it – the purchase didn’t make sense for them.