Data Center Cost
What is Data Center Cost?
Data center cost is the total cost of owning or renting and operating a data center, including facilities, power, cooling, hardware, network connectivity, staff and maintenance.
Updated November 2026 · 5 min read
Data center cost covers everything an organization spends to house and run its computing infrastructure. For an owned facility, that includes the building or leased space, power and cooling systems, physical security, network connectivity, the servers and storage inside, and the people who operate it all. For colocation, it includes rent for space and power, plus the organization's own equipment and staff. Data centers are among the largest and most capital-intensive parts of many IT budgets.
Understanding data center cost matters because organizations constantly decide where to run their workloads: in their own facilities, in colocation, in the public cloud or in some combination. These decisions involve large sums and long time frames. For IT financial management, accurately measuring data center cost, and expressing it in units that can be compared with alternatives, is essential for making sound infrastructure decisions.
Definition of Data Center Cost
Data center cost is the total cost of providing the physical environment and infrastructure needed to run computing equipment, together with the equipment itself and its operation. It is usually expressed annually and broken down into facility costs and IT equipment costs.
In the TBM taxonomy, data center costs appear in the Data Center tower, which covers the physical facility, while servers, storage and network equipment appear in their own towers. Separating them helps organizations see how much they spend on the building and environment versus the computing equipment inside.
Facility Costs
Facility costs include construction or lease of the building, power distribution, uninterruptible power supplies, generators, cooling, fire suppression, physical security and building maintenance. For owned facilities, construction costs are capitalized and depreciated over long periods, often 15 to 30 years for buildings and 10 to 15 years for mechanical and electrical systems.
Electricity is a major ongoing facility cost. Data center efficiency is often measured by power usage effectiveness (PUE), the ratio of total facility energy to the energy used by IT equipment. A PUE of 1.5 means that for every unit of energy used by IT equipment, another half unit goes to cooling, power conversion and other overhead.
IT Equipment and Operations Costs
IT equipment costs include servers, storage, network devices and racks, usually depreciated over three to seven years. Maintenance contracts, software licenses for infrastructure and spare parts add to these costs.
Operations costs include the staff who run the facility and equipment, such as facility engineers, data center technicians and network operations staff, along with monitoring tools and remote hands services. These are often a substantial share of the total, especially in smaller facilities.
Importance of Data Center Cost in IT Financial Management
Data center costs are large, long-lived and largely fixed. Decisions about building, expanding, consolidating or exiting data centers commit significant capital and shape costs for years.
Accurate data center costing is therefore essential for comparing hosting options and planning infrastructure strategy.
Comparing Hosting Options
Organizations regularly compare the cost of running workloads in their own data centers with colocation and public cloud. A fair comparison requires the full cost of each option, including facilities, power, hardware, staff and overhead, not just the visible costs such as hardware purchases.
Expressing data center cost in comparable units, such as cost per server, per rack, per kilowatt or per virtual machine, makes these comparisons possible. A full total cost of ownership (TCO) analysis is usually needed for major decisions.
Utilization and Stranded Costs
Because most data center costs are fixed, the cost per unit depends heavily on utilization. A facility running at half capacity has roughly double the cost per rack of one running full. As workloads move to the cloud, remaining facilities often become underused, raising unit costs.
Planning exits and consolidations carefully avoids stranded costs, where the organization continues to pay for facilities, leases and equipment it no longer needs. Remaining book value on equipment may also need to be written off through impairment.
How to Calculate Data Center Cost
Calculating data center cost involves gathering facility, equipment and operations costs, allocating shared costs and dividing by an appropriate unit.
The calculation should be repeated regularly, since utilization and costs change over time.
Gathering and Allocating Costs
Facility costs come from lease or depreciation schedules, utility bills, maintenance contracts and security services. Equipment costs come from fixed asset records and maintenance contracts. Staff costs come from payroll, allocated by the share of time spent on the data center.
Shared costs, such as network connectivity and IT management, are allocated using reasonable bases. Organizations with multiple facilities should cost each separately, since costs and utilization often vary widely between sites.
Choosing Units of Measure
Common units include cost per rack, cost per kilowatt of IT load, cost per physical server and cost per virtual machine. Cost per kilowatt is useful for comparing facilities, since power capacity is the main constraint in modern data centers.
Cost per virtual machine or per workload is more useful for comparing with cloud, since it reflects what applications actually consume. Reporting several units gives a fuller picture and supports different decisions, from facility planning to IT chargeback rates for hosting. These unit costs feed into the Data Center tower among a TBM model's IT towers.
Examples of Data Center Cost in IT Financial Management
The examples below show data center costing applied to infrastructure decisions.
Both use illustrative figures for a single owned facility.
In each, measuring the full cost changed how leaders viewed their options, and utilization proved as important as price.
Cost per Rack
A company's owned data center costs $9 million a year: $3 million for facility depreciation and maintenance, $2.4 million for power, $2.1 million for staff and $1.5 million for network and other shared costs. It has 300 racks in use, a cost of $30,000 per rack per year, excluding the servers in them.
About $22,000 of that covers what a colocation provider would supply: the facility, power and facility staff. A nearby provider offers comparable space, power and facility services for $18,000 per rack per year, a saving of about $1.2 million a year across 300 racks, before migration costs. Network, shared costs and the staff who manage the servers remain in either case.
Stranded Costs After Cloud Migration
After moving half its workloads to the cloud, a company's data center runs only 150 of its 300 racks. Facility costs barely change, so cost per rack doubles to about $60,000.
The company plans to consolidate the remaining workloads into one section of the facility and sublet or exit the rest when the lease allows. Without this plan, the cloud migration would have added costs rather than reducing them. The company now reviews data center utilization every quarter as part of its migration program.
Conclusion
Data center cost is the total cost of providing and operating the physical environment for computing, including facilities, power, cooling, equipment, connectivity and staff. Much of it is fixed and long-lived, so unit costs depend heavily on utilization.
In IT financial management, accurate data center costing is essential for comparing on-premises, colocation and cloud options and for planning consolidations and exits. Gathering full costs, allocating shared costs carefully and expressing them in comparable units helps organizations make sound infrastructure decisions and avoid stranded costs.
Related terms
Total Cost of Ownership (TCO)
Total Cost of Ownership (TCO) is the full cost of an asset over its useful life. It covers purchase, implementation, operation, support and retirement, not just the contract price.
Impairment
Impairment is a permanent reduction in the value of an asset, recorded when its carrying amount on the balance sheet exceeds the amount the organization expects to recover from it.
IT Chargeback
IT chargeback is the practice of billing business units for the technology services they consume, moving those costs from IT's budget into theirs. It ties technology spending to the teams that drive it.
IT Towers
IT towers are groups of technology resources, such as compute, storage, network and end-user devices, used to organize IT costs in TBM. The current TBM Taxonomy calls them technology resource towers.