Understanding the true cost of an on-premise infrastructure is essential for smart budgeting and comparison against cloud alternatives. Use this calculator to determine the Annual Total Cost of Ownership (Annual TCO) for your in-house hardware and software systems.
On-Premise Cost Calculator
On-Premise Cost Calculator Formula
Annual TCO = (Initial Setup Cost / System Lifetime) + Annual Operating Costs + Annual Staff Costs
TCO_ANNUAL = (C_SETUP / L) + C_OP + C_STAFF
Formula Source: This model is based on standard Total Cost of Ownership (TCO) methodology used in corporate IT and financial planning.
Gartner – TCO Definition |
TechTarget – TCO Explained
Variables Explained
- Initial Setup Cost (C_SETUP): The total upfront capital expenditure (CapEx) for physical hardware (servers, racks, networking), and one-time software license fees.
- Annual Operating Costs (C_OP): Recurring expenses to keep the infrastructure running, including electricity/power, cooling, software maintenance contracts, and third-party vendor support.
- System Expected Lifetime (L): The useful economic life of the system (typically 3 to 7 years) before major hardware refresh is required. This is used to annualize the setup cost (depreciation).
- Annual Staff/Administration Costs (C_STAFF): The dedicated salary and benefits cost for the internal IT staff required to monitor, patch, manage, and maintain the on-premise infrastructure.
Related Calculators
What is an On-Premise Cost Calculator?
An On-Premise Cost Calculator is a specialized financial tool designed to estimate the full economic burden of hosting IT infrastructure within a company’s own facilities (on-premise). It moves beyond simple purchase price by incorporating all direct and indirect expenses incurred over the system’s operational lifetime, thus determining the Total Cost of Ownership (TCO).
The primary purpose is to provide a realistic, annualized expense figure that decision-makers can use for budgeting, forecasting, and, most importantly, comparative analysis. By clearly defining the cost of capital equipment, ongoing operations, and labor, businesses can make informed choices when weighing on-premise against public cloud (IaaS/PaaS) deployments.
How to Calculate Annual TCO (Example)
Let’s use a hypothetical small business data center setup as an example:
- Determine Initial Setup Cost (C_SETUP): $300,000 (Servers, networking gear, OS licenses).
- Estimate System Lifetime (L): 4 years (The typical refresh cycle).
- Calculate Annualized CapEx: $300,000 / 4 years = $75,000/year.
- Estimate Annual Operating Costs (C_OP): $40,000/year (Power, cooling, physical security, software renewal fees).
- Estimate Annual Staff Costs (C_STAFF): $90,000/year (IT Administrator salary dedicated to maintenance).
- Sum the Costs: Annual TCO = $75,000 + $40,000 + $90,000 = $205,000.
Frequently Asked Questions (FAQ)
What is the difference between CapEx and OpEx in TCO?
CapEx (Capital Expenditure) is the upfront cost (Initial Setup Cost) which is depreciated over the asset’s lifetime (L). OpEx (Operating Expenditure) is the ongoing cost, including Annual Operating Costs and Staff Costs, which are treated as yearly expenses. TCO combines both.
Does this calculator include disaster recovery costs?
It can. Disaster recovery and backup solutions should be included either in the Initial Setup Cost (upfront hardware/software) or the Annual Operating Costs (recurring backup service fees/maintenance), depending on how they are provisioned.
Why is Staff Cost so important for on-premise TCO?
Labor is often the largest component of TCO for on-premise systems. Unlike cloud services where management is outsourced, on-premise requires dedicated internal staff for patching, monitoring, security, and break/fix, making this input critical for accurate analysis.
How does TCO compare to Cloud Cost?
Cloud cost is usually a pure OpEx model (pay-as-you-go) and lacks the upfront CapEx and high labor costs of on-premise. The TCO calculator helps quantify the on-premise side for a fair comparison against cloud pricing models.