Lifetime cost definition

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What is Lifetime Cost?

Lifetime cost is the sum total of all expenses related to a purchase over its expected life. These costs include the original acquisition price, as well as subsequent maintenance, upgrades, insurance, and operating costs related to the purchase. An organization should always calculate the lifetime cost of an asset before purchasing it. As noted in the following examples, it can sometimes make sense to calculate lifetime cost and see if there are less expensive alternatives available before making a purchase decision.

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Examples of Lifetime Cost

Here are several examples of lifetime cost, and how knowing about these costs might alter your initial purchase decision:

  • Appliances. For household appliances like refrigerators or washing machines, lifetime costs include the purchase price, energy consumption, maintenance or repair fees, replacement parts, and potential disposal costs at the end of their usable life. Extended warranties might also add to the overall cost.

  • Automobiles. Vehicles have many lifetime costs associated with them - including gasoline, oil changes, licensing, insurance, inspection fees, tire replacements, parking fees, car washes, and other maintenance as parts fail. In total, the ongoing operating costs of a car can exceed the original purchase price. From this perspective, it makes sense to evaluate the projected maintenance costs of different vehicles, to see if there are significant disparities between them.

  • Home ownership. For a house, the lifetime cost encompasses the purchase price, mortgage interest payments, property taxes, homeowner's insurance, routine maintenance (like roof repairs and landscaping), utilities, and potential upgrades such as kitchen remodeling or energy-efficient windows.

  • Laser printers. A good example of the lifetime cost concept is a laser printer, since the lifetime cost of the toner cartridges needed to operate it greatly exceeds the original purchase price of the printer itself. Given this cost disparity, it makes sense to evaluate the cost of toner cartridges for competing brands of laser printers, rather than the price of the laser printers themselves.