Saturday, November 29, 2008

Calculate Your Cost Per Unit

Tip #34 - Calculate Your Cost Per Unit. When figuring out what things cost, it's important to look at the cost per unit (per pound, per ounce, etc.). Suppose you go to the grocery store and you see two boxes of cereal - Box A costs $3 and Box B costs $2. At first glance it would seem to make sense to grab the Box B since it's cheaper. It just has to be the better deal. Doesn't it? Not necessarily. Suppose Box A is 24 ounces and Box B is 12 ounces. That means for Box A costs only $1.50 for 12 ounces versus $2 for 12 ounces in Box B. Box A is actually the better deal.

When tryng to cut down on spending, it is important to look at cost breakdowns. If you can't do the math in your head, then bring a calculator along. It's important to be able to figure out the price per unit. It's simple math. Take the cost of the item and divide it by the number of units. For this example, we are using ounces. So if Box A is $3 and there are 24 ounces then we take $3 and divide it by 24. 3/24 is 12.5 or 12 1/2 cents per ounce. For box B, the math is 2/12 which is 16.7 or 16 2/3 cents per ounce. Clearly Box A is the better deal.

This is why buying in bulk is often, but not always, the better deal. The larger the package, the cost per unit unit usually goes down. BUT NOT ALWAYS. This is why you should carry a calculator or do the math in your head. Sometimes the smaller box is a better deal. This is often true when you have a coupon. Because the coupon value is a greater percentage of a lower-priced item, it may bring the cost per unit down on a smaller box versus a bigger box. Do the math. Figure out the cost per unit and in the long run, you will save money.

In Real Life (IRL) - I always calculate the cost per unit when I'm in the grocery store. Some of the grocery stores do it for me, which is nice. But some don't. Because I'm a numbers person, I don't have a calculator, but it's really not too hard to do. I will almost always buy the better deal as long as I can use the product before it expires. If it's something I will only use once and don't anticipating ever using again, then I will buy the smaller item for the greater cost per unit price. After all, it doesn't make sense to buy more than I need. But for things I use all the time, I go for the lower unit price all of the time. It just makes sense and saves me money in the long-term.

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