When shopping for a mobile phone deal, it's easy to be drawn to offers with low monthly payments or £0 upfront costs. But are these deals truly the best value for money? To find out, you need to consider the total cost of ownership (TCO).
TCO is the complete amount you'll pay for a phone over the course of your contract, factoring in monthly costs, upfront fees, and any additional charges. Understanding TCO can help you make smarter decisions and avoid overpaying. Let's break it down.
What is the total cost of ownership?
The total cost of ownership is the total amount you'll spend on a phone deal from start to finish. It includes:
- 1. Upfront costs: The amount you pay initially to get the phone. Some deals have no upfront cost, while others require hundreds of pounds upfront.
- 2. Monthly payments: Your fixed monthly payment, which usually covers the cost of the handset and your allowance for data, minutes, and texts.
- 3. Additional charges: Extras like roaming charges, overage fees (if you exceed your data allowance), or optional add-ons like insurance.
By looking at the TCO instead of just the monthly cost, you can see the true cost of a phone deal and compare offers more effectively.
Why does TCO matter?
Understanding TCO is crucial because it helps you:
- 1. Avoid hidden costs: A deal with low monthly payments might seem cheap, but a high upfront cost can make it more expensive overall.
- 2. Compare deals fairly: TCO allows you to directly compare deals with different structures - such as £0 upfront vs. low monthly payments - on an equal basis.
- 3. Budget more accurately: Knowing your total outlay ensures there are no surprises and helps you manage your finances better.
- 4. Find the best value: The cheapest deal isn't always the best value. TCO helps you weigh cost against other factors like data allowances and handset quality.
How to calculate the total cost of ownership.
To calculate the TCO, follow these three steps:
- 1. Multiply the monthly cost by the contract length: For example, a £30/month contract over 24 months costs £720 (£30 x 24).
- 2. Add the upfront cost: If there's an upfront fee of £100, add this to the total: £720 + £100 = £820.
- 3. Factor in additional costs (if applicable): Consider any optional extras like insurance or likely overage charges. For example, adding £5/month for insurance over 24 months adds £120 (£5 x 24).
Example TCO calculation:
- - Monthly payment: £30
- - Contract length: 24 months
- - Upfront cost: £100
- - Insurance: £5/month
Total cost of ownership: £30 x 24 + £100 + (£5 x 24) = £940
TCO in action: comparing two deals.
Let's compare two deals for the same phone:
| Deal | Monthly payment | Upfront cost | Contract length | TCO |
|---|---|---|---|---|
| Deal 1 (low upfront) | £35 | £50 | 24 months | £890 |
| Deal 2 (no upfront) | £40 | £0 | 24 months | £960 |
At first glance, Deal 2 might look more attractive with no upfront cost. However, Deal 1 has a lower TCO, saving you £70 over the contract.
Tips for minimising your TCO.
- 1. Look beyond the monthly cost: Always calculate the TCO to ensure you're comparing like for like.
- 2. Choose the right data allowance: Don't overpay for unlimited data if you only use 10GB a month. Check your network app to see how much data you're using every month.
- 3. Consider refurbished phones: Refurbished handsets often come with significantly lower TCO, especially if you're happy with a slightly older model.
- 4. Avoid extras you don't need: Think twice about add-ons like insurance or bolt-on features unless they're essential for you.
- 5. Use a comparison tool: Websites like Phones.co.uk let you filter deals by TCO, making it easier to find the best value.
Why Phones.co.uk helps you find the best TCO.
Phones.co.uk makes comparing deals simple. Our platform calculates the total cost of ownership for every deal so that you can make informed decisions at a glance. Filter deals by upfront cost, monthly payments, or total cost to find the right phone and plan for your budget.
Final thoughts.
The total cost of ownership is a powerful tool for finding the best mobile phone deals. By understanding TCO and comparing deals based on this metric, you can save money, avoid hidden costs, and choose a deal that suits your budget and lifestyle.