Click here to request your free 14-day trial of Cisco Umbrella through NetCraftsmen today!

7/16
2015
Renee Wagner

IT Purchasing: How to Tell the Difference Between Price, Cost

Often times, I hear people use price and cost interchangeably to describe what they will pay for a given good or service. In reality, price and cost are two very different things. Particularly when you are considering a larger purchase, you should not confuse the two.

Price is the dollar amount that we are willing to pay to acquire a given good or service. The salesperson says, “The price for this service is X.” So we think this service is only going to cost X. But in most cases, price is just the start of an investment.

The total cost of ownership includes the price you pay for the item itself, plus whatever you’ll lay out in maintenance, upgrades, insurance, and any other expenses necessary to gain value out of your initial investment.

Think about buying a car. You might feel good paying $45,000 for a car instead of a comparable car that costs $50,000. But did you really get a deal? That price doesn’t include gas, maintenance, and insurance for the life of the car. If it gets poor mileage compared to the slightly pricier car, or requires more maintenance or higher insurance premiums, that great price you got isn’t so great anymore.

Price vs. Cost in Business Technology

Well, the same holds true when investing in your IT infrastructure. Vendor A wants you to replace vendor B’s networking gear with his. Vendor A can get the price way down for you with competitive displacement discounts, new customer pricing, trade-in value, and management approval. Great. It might be half the investment you initially made in vendor B.

But what is the cost?

To determine what your cost is going to be to move from vendor B to vendor A in any network deployment, consider these things. How much will it cost to:

  1. Remove and replace your existing networking gear with the new networking equipment? This cost should include not only the man-hours of your staff, but the cost of bringing in a vendor who knows the new gear, since your current IT staffers probably don’t have the expertise required to install it on their own.
  2. Ensure that moving to a new vendor doesn’t impact interoperability with your customers and vendors?
  3. Train your IT staff on how to use and manage the new networking gear? This cost is ongoing as the new vendor upgrades its products over time. So the initial training is just the start.
  4. Determine the impact to your end users, and the other systems that are attached to your existing network? Even more importantly, will everything continue to operate as it does today once you make the change?
  5. Conduct an impact study to determine the impact of these changes?
  6. Provide ongoing support and maintenance for the new networking equipment?

You’ll be asked to measure and justify the total cost of ownership for any IT project you deploy. So, hopefully you are beginning to see the drastic difference between price and cost. While most of us have some awareness of the difference, over time we all tend to lose sight of the impact this difference can have on our long-term IT investments.

My advice: When you are being presented with a new offering, request a detailed breakdown of the long-term cost of making that investment. If you present the actual cost up front when seeking budget approval, it will help eliminate questions about ongoing costs. If you don’t present ongoing costs early on, questions may arise internally as you (and those above you) incrementally discover the true costs of a given solution.

Most salespeople probably cannot give you the actual cost for their solution right off the bat. They will try to keep you focused on the great price they are giving you. If they can’t, or won’t, work with you to explore true cost for their solution, find another partner. It’s that simple.

Ultimately, you may well be held accountable by the organization, or board, for the cost to the company. If the vendor cannot support you from the start with the information you need to justify the cost of a new solution, they probably won’t be there when you need them most.

For a deeper conversation on understanding the difference between price and cost, feel free to reach out.

Renee Wagner

Renee Wagner

Vice President, Sales and Business Development

Charged with developing and nurturing strategic relationships with vendors, partners, and clients, Renee has been in the business development and sales area throughout her entire career at NetCraftsmen, in all of our technical service competencies. Prior to NetCraftsmen, she was an executive director at Mentor Technologies, concentrating business development, consulting, and project management. Renee has more than 20 years of experience working in IT, beginning her career as a systems engineer at NASA’s Goddard Space Flight Center. She has a thorough understanding of the professional services lifecycle and the role NetCraftsmen can play.

View more Posts

 

Nick Kelly

Cybersecurity Engineer, Cisco

Nick has over 20 years of experience in Security Operations and Security Sales. He is an avid student of cybersecurity and regularly engages with the Infosec community at events like BSides, RVASec, Derbycon and more. The son of an FBI forensics director, Nick holds a B.S. in Criminal Justice and is one of Cisco’s Fire Jumper Elite members. When he’s not working, he writes cyberpunk and punches aliens on his Playstation.

 

Virgilio “BONG” dela Cruz Jr.

CCDP, CCNA V, CCNP, Cisco IPS Express Security for AM/EE
Field Solutions Architect, Tech Data

Virgilio “Bong” has sixteen years of professional experience in IT industry from academe, technical and customer support, pre-sales, post sales, project management, training and enablement. He has worked in Cisco Technical Assistance Center (TAC) as a member of the WAN and LAN Switching team. Bong now works for Tech Data as the Field Solutions Architect with a focus on Cisco Security and holds a few Cisco certifications including Fire Jumper Elite.

 

John Cavanaugh

CCIE #1066, CCDE #20070002, CCAr
Chief Technology Officer, Practice Lead Security Services, NetCraftsmen

John is our CTO and the practice lead for a talented team of consultants focused on designing and delivering scalable and secure infrastructure solutions to customers across multiple industry verticals and technologies. Previously he has held several positions including Executive Director/Chief Architect for Global Network Services at JPMorgan Chase. In that capacity, he led a team managing network architecture and services.  Prior to his role at JPMorgan Chase, John was a Distinguished Engineer at Cisco working across a number of verticals including Higher Education, Finance, Retail, Government, and Health Care.

He is an expert in working with groups to identify business needs, and align technology strategies to enable business strategies, building in agility and scalability to allow for future changes. John is experienced in the architecture and design of highly available, secure, network infrastructure and data centers, and has worked on projects worldwide. He has worked in both the business and regulatory environments for the design and deployment of complex IT infrastructures.