Total Cost of Ownership: Why the Cheapest Site Often Isn't the Best

When manufacturers search for a new facility, there’s a natural temptation to chase the lowest price tag. On paper, a less expensive site or building can seem like a slam dunk—immediate savings, a faster path to profitability, and less upfront risk. But in economic development and industrial site selection, price doesn’t equal value. The true cost of a site is more complex and must be understood through the lens of Total Cost of Ownership (TCO).

At Impact Economics, we regularly advise clients to look beyond square footage prices or leasing terms and instead focus on a broader, more strategic understanding of operational costs. Here’s why the “cheapest” option is often the most expensive in the long run.

1. Workforce Quality and Labor Costs

A facility is only as productive as the people inside it. Communities with a shallow labor pool, weak technical training programs, or high turnover rates can impose hidden costs on your business—recruitment expenses, training delays, and production downtime.

On the flip side, paying slightly more for a site in a region with a well-aligned workforce, local training partners, and strong work ethic can improve productivity and lower labor-related risk. Sometimes, the “cheaper” location ends up costing more simply because it’s harder to staff effectively.

2. Utility Costs and Infrastructure Capacity

Older industrial buildings with bargain-basement prices often come with outdated infrastructure. Think inefficient HVAC, low power availability, or inadequate water/sewer capacity. The result? You’ll end up spending more in retrofits, higher monthly utility bills, and potential operational limitations.

Even if two sites look identical in size and configuration, energy rates and utility reliability vary dramatically by region. Over a ten-year period, a small difference in energy cost per kWh can result in six- or seven-figure differences in your bottom line.

3. Tax Structure and Regulatory Environment

Some states and localities offer low up-front costs but burden businesses with high property taxes, personal property taxes on machinery, or unpredictable regulatory enforcement. Others offer a more business-friendly tax and permitting environment that creates long-term cost advantages.

When evaluating a site, don’t just consider the building cost—consider the tax bill five years from now. Ask whether the community offers abatements, exemptions, or other long-term tax planning opportunities that offset your initial capital outlay.

4. Logistics and Proximity to Customers or Suppliers

Transportation costs are one of the biggest line items in any manufacturer’s budget. If a cheaper site adds significant mileage to your shipping routes, or positions you far from suppliers and key customers, those “savings” vanish quickly.

A site that’s 10% more expensive but 20% closer to your logistics hub may create meaningful recurring savings in fuel, time, and risk of disruption. In today’s just-in-time economy, smart location decisions are often less about real estate and more about supply chain resilience.

5. Insurance and Risk Profile

Your property insurance premiums reflect local risk factors: floodplain location, crime rate, emergency response times, and even political and environmental volatility. Choosing a lower-cost site in a higher-risk area may leave you with a monthly insurance bill that far exceeds any upfront savings.

We encourage our clients to evaluate total risk exposure—not just for property insurance, but also for business interruption coverage, workers’ comp, and liability insurance. A few hundred dollars per month in premium difference can add up fast over the life of a facility.

Making Smarter Location Decisions

The smartest manufacturers don’t look for the cheapest building—they look for the best overall value. That means understanding the long-term operating environment, aligning your location strategy with your talent and logistics needs, and partnering with communities that want to see you succeed.

At Impact Economics, we help mid-sized manufacturers move beyond surface-level comparisons and uncover the true cost—and true opportunity—of each potential site. By focusing on Total Cost of Ownership, you avoid surprises, reduce risk, and set your business up for sustainable growth.

Want to avoid costly mistakes in your next site decision?
Let’s talk. We’re ready to help you find the right site in the right community—at the right total cost.