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.”

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?