Data Center TCO – A Primer

When calculating the Total Cost of Ownership (TCO) in a wholesale or multi-tenant colocation environment, you’ll need to consider the following key cost drivers:

  1. Base Rent, Ramps and Annual Escalators
  2. Utility Rate over the term of your lease/contract
  3. Sales, Use and “Cloud” Taxes
  4. Hardware and Software Refresh Costs
  5. Power Usage Effectiveness (PUE) ratio

Let’s break down each one.

Base Rent, Ramps and Annual Escalators

Most wholesale colocation operators offer either a triple net (NNN) or modified gross lease option based on the electricity (kW) your data center will consume. There are pros and cons for each option depending on your need for transparency, predictability and the length of your term.

You will most likely not be consuming all of the electricity your data center needs on Day 1. Instead, like most data center users, you will “ramp-up” over the term of your contract. This ramp period may impact the price you pay for electricity.

Most modified gross engagements index your pro-rata share of common operating expenses on an annual basis and add this expense to your lease, which provides greater predictability over a NNN lease.

Typically, In the Chicagoland market, it is common to find modified gross base rent in the $80-$100/kW range with a 1-3% annual escalator.

Utility Rate

Electricity rates varies greatly by market and can be influenced by the contractual agreements in place between the data center operator and the utility.  Its important to understand the rate you will pay as you ramp up and over the term of your contract.

Electricity rates in the Chicagoland market range from $.055-$.06/kWh.

Sales, Use and “Cloud” Taxes

Taxes are one of those expenses that often go unconsidered. Most states and municipalities charge a sales and use tax on electricity, rent, and hardware and software purchases. Some counties, like Cook County (home to Chicago), charge a 9% “cloud” tax for the use of online services like AWS or Microsoft Azure.

Digital Crossroad’s data center in Hammond Indiana, which is less than 30 minutes from downtown Chicago, has no cloud tax and offers a 0% sales and use tax exemption on all data center expenses, including electricity and rent, for the next 50 years.

Hardware and Software Refresh Costs

The cost to outfit a single cabinet with the necessary hardware (servers, storage arrays, network infrastructure, cabling, power distribution and surge protection) and software can range from $50,000 to more than $500,000.  Refresh cycles are typically every 3-5 years with colocation terms ranging between 7-12 years, which means that the cost for procuring and installing new hardware and software will need to be considered 2-4 times over the term os your contract.

Power Usage Effectiveness (PUE)

According to the Uptime Institute, the average PUE of a data center is 1.58. That means that .58 of the energy consumed by the data center is lost or used by systems that do not directly supply power to your IT equipment. The higher the PUE, the more you’ll pay. Always look for a provider that can guarantee, contractually, the lowest PUE possible when calculating your base rent.

To calculate the TCO for your next data center initiative, feel free to use this helpful data center TCO calculator or contact a member of the Digital Crossroad team – we’d be happy to help you.

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