To Buy or Not to Buy? The “Cost Per Use" Method

by Joe Plemon on May 31, 2010

Should you buy that treadmill? First determine your cost per use.

  • Which is a better purchase: a $500 winter overcoat or a $20 T-shirt?
  • Should you buy a 7 passenger car or will the 5 passenger one do?
  • When is Netflix a better deal than purchasing the DVD?
  • How much extra can you justify paying for a guest room in a house?

These and many other purchasing questions can be determined by calculating a cost per use of the item you are considering. Cost per use does not work for every purchase, but can be an effective help for many. The concept is simple: estimate how many times you will use the item (caution: most people over estimate) and divide that purchase price by that number to get a cost per use.

Clothing

How about that $500 overcoat? If you plan to wear it 150 days a year for five years, your cost per use would be $0.67. If you only wear that $20 T-shirt five times, it is costing you $4 per use. The shirt is therefore costing about six times as much per use than the coat. Get the idea?

Car

Should you pay an extra $5,000 for that 7 passenger car? It depends on how often you actually need those extra seats for the life of the vehicle. Obviously, if you have a family of seven you need all the seats you can get, but if you only use those extra seats one week a year for your annual vacation, you are paying $1,000 for each of those weeks (assuming you keep your vehicle five years). Because a seven passenger mini-van rents for about $500 a week at Enterprise, you may be better off saving your $5000 purchase price and renting that 7 passenger vehicle when you need it.

DVDs

Our Netflix subscription is $5 a month for two DVDs delivered to our house. The subscription also includes unlimited instant viewing (which we don’t use), so our cost per use is simple: $2.50. How does this compare to purchasing a new DVD? It depends on how often I would watch it. At $2.50 per use, we would need to watch a new $15 DVD six times to break even. Because I seldom watch any movie more than twice, I am nearly always better off renting. And that yard sale “bargain" I pay $1 for is a bad deal if I never watch it at all.

Other subscriptions

We pay $18.82 a month for our daily newspaper and $12 a year for a monthly magazine subscription. Which is a better deal? I read the newspaper virtually every day for a cost per use of $0.62 compared to $2 per use with my magazine (I only read it about every other month).

High use items

You can justify paying more for items you use daily. For example, paying $200 more for a high quality computer monitor that you use daily for four years is only costing you about $0.14 a day.

And how about those ink jet cartridges? Do you simply shop for the cheapest cartridge or do you check the cost per page. The post Frugal Printing, Is It Possible? points out that a black ink cartridge selling for “only" $14.99 will only print 200 pages, a cost of $0.075 per page. Kodak is advertising a new printer that uses cartridges that will cost only $0.023 per page. Should you rush out and buy a new printer? Again, it depends on how many pages you print, but you could save $50 for every thousand pages printed with the Kodak printer.

Big ticket items

How much extra should you pay to get a house with a guest room? If, for example, your four bedroom house costs you $50,000 more than a three bedroom house, and you use the guest room 10 times a year for the ten years you own the house, that guest room is costing $500 for each use. It may be more prudent to pay for your guest to stay in a hotel or even purchase a hide a bed (or inflatable mattress). Of course there are other factors: you may recoup the entire $50,000 when you sell the house. The point is that you should think through the cost of having the room.

In the same way, a couple who keeps a house after the kids have left the nest could figure the cost of those extra rooms by getting prices on downsizing. If they could sell their house for $200,000 and buy a smaller house for $125,000, they are effectively paying $75,000 to keep those extra rooms. Even if they are used 20 times a year for ten years, the cost per use is $375 … pretty pricey.

A $5000 camper that is used 50 times a year for 10 years is costing $10 per use. However, the same camper, if used only 5 times a year for 10 years, is costing $100 per use. In that case, a hotel room would be cheaper.

Exceptions

One use items

Not every purchase is applicable, particularly those which are used only once. Examples are life insurance policy, burial plot, wedding gown and most groceries.

The quality factor

Quality is a purchasing consideration that will often trump cost per use. After running the gamut on mattresses (spring, water and air), we paid $4,000 for our Temper Peidic mattress four years ago. Our cost per use to date? Nearly $3. Pricey? Not in our opinion, because the quality is WAY better than anything we ever tried before. The value of a good night’s sleep is not, for us, worth skimping on.

In the same way, my DeWalt power tools perform so much better than my lesser quality tools that I will pay more even if I cannot easily document the cost per use. This being said, my experience tells me that high quality tools last at least twice as long as lesser quality tools, so the cost per use rationale would easily justify paying twice as much for premium tools.

Concluding thoughts

The cost per use analysis is not an exact science, but can be a good way to help decide on many purchases. Once you develop the cost per use mindset, you will discover yourself thinking, “Hmmm. That purchase doesn’t make sense…I don’t use that item often enough to justify it." or “Wow! As often as I would use this, I can’t really afford not to get it."

Creative Commons License photo credit: Make Lemons

Readers: Do you use cost per use thinking? For what purchases? How do you think doing so will help? When could cost per use backfire?

{ 13 comments… read them below or add one }

Khaleef @ KNS Financial May 31, 2010 at 7:45 pm

Great tip! This is a very good way to compare items that aren’t identical. As you said, quality must factor in to the decision, since that will diminish the utility of each use and may even decrease the amount of good uses you get out of the item.

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1milchallenge May 31, 2010 at 11:38 pm

I use the price per use rule for clothing now. If I truly love an item of clothing adn will wear it lots, it has more value then a $20 top I think is ok. An ok top wont get worn much and will cost more.

I have begun to apply it to everything and now when I replace items in my house I buy the best quality, as it lasts longer nad works out to be better cost per use.

I didn’t even think of the guest room the way you said it. Definitely food for thought!

Thanks.

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Shannon June 1, 2010 at 12:52 pm

How did you get a $5 a month Netflix subscription?

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joeplemon June 1, 2010 at 1:57 pm

@Khaleef,
Yes, quality must be a factor, so judgment is required when making a purchase. But the cost per use is a good help.

@1milchallenge,
Glad to hear from someone who already uses the cost per use technique.

@Shannon,
My son got me a three month Netflix trial subscription as a Christmas gift in 2008. We continued the subscription. It is $4.99 a month, but only includes two movies a month. But, as I mentioned, it also includes unlimited “watch now” selections. I don’t know if that price option is still available or not.

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Darren June 1, 2010 at 3:20 pm

I like this because it get’s you thinking about how many times you’re likely to use something BEFORE you buy it. I’ve bought things in the past that I’ve only used once, or haven’t even used yet! Luckily, they’re pretty small purchases.

But this way of thinking definitely helps in spending more consciously.

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Dave October 27, 2010 at 11:24 am

I don’t think the big ticket item per user cost is accurate. These items must factor in a re-sale value. For example, the $5000 camper. If you use it 10 times/year for 5 years, you have the $100/use cost, but if at the end of that time period you sold the camper for half cost, $2500, you would cut the per use cost to $50. I think it’s safe to say the the re-sale value should be factored in for these major purchases, especially an item that can appreciate, like a house.

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James October 27, 2010 at 11:48 am

I’ve been using this system for quite a while now but my favorite use for it, by far, is convincing me not to go out and eat. While it may not technically be considered cost per use because you only use it once, I often find myself thinking, “Pay 20 dollars to eat out once or pay 20 dollars and have food for a week.” Works every time.

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joeplemon October 27, 2010 at 11:49 am

Dave,
Although I did mention that resale of a house should be considered, I totally overlooked that same factor with the camper example. You are exactly right. Thanks for pointing this out.

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joeplemon October 27, 2010 at 2:26 pm

James,
I didn’t consider the “eating out/eating in” comparison, but it is a valid one. One meal out versus several meals at home is, as you said, a good motivator to eat at home. On a similar note, I love leftovers because it is like we are getting a free meal, or two for the price of one.

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Marius Loots October 28, 2010 at 2:20 am

Also known as the hound per pound principle. A labrador at the same price as a corgie is a more value for money dog.

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Mic_hall October 28, 2010 at 2:55 am

Don’t forget the residual value. If you pay an extra 5000 $ for a car and plan to keep it for 5 years, you are likely to recover a substantial part of that 5000 $ spent when you are geeting rid of it. Plus, you pay for the ‘coonvenience’ of having 7 seats at your will. Maybe, you are in fact using that seats only a week per year – but you never can anticipate when exactly you would need it – so you may accualy may give a lift to your neighbour kids when the need is…

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joeplemon October 28, 2010 at 7:04 am

@Mirius,
“Hound per pound” is a new one for me, but an apt (and humorous) analogy.

@Mic_Hall,
Good thoughts. The cost per use is not an exact science, so one needs to be factoring in residual value and, of course, convenience. At that point, one needs to be asking how much that convenience is actually worth.

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Dave@50plusfinance October 30, 2010 at 5:00 pm

Does your cost-per -use go up or down on an item that appreciates? What about your home when values go up or down. Is your house cheaper if the price goes down. What if you had a vacation house you use maybe 5 times per year. Does your cost per use increase with appreciation.

Do items that have maintenance vs. items that don’t, effect cost-per-use? Its a fun thought experiment. Its something I never considered when making a purchase. Nice article. Also congrats on the LifeHacker post.

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