Friday, May 22, 2009

Figure Out Cost Per Use

Saving Money Tip #144 - Figure Out Cost Per Use. When buying things such as food, it’s pretty easy to figure out cost per unit – a pound of meat for $5, an ounce of cereal for 10 cents, etc. But how much is the cost per use – not just for food but for other things as well? Let’s say you buy a book for $10 and read it once and then give it away. The cost per use was $10 for that book. Suppose you read it and your husband reads it, too. Then the cost per use is $5. If you buy a kitchen table for $500 and it lasts you 10 years then the cost is $50 per year (I suppose you could break this down further to cost per day or per meal, but I don’t think that is necessary.) Let’s figure out the cost per use for food. Suppose you buy a ½ gallon of ice cream (or 1.5 quarts as it seems to be these days) for $3 and you get 10 bowls out of it, then each dish of ice cream was 30 cents.

Figuring out the cost per use is important because it puts costs into perspective. If you want entertainment for the evening, you can go to the movies for $10 (cost per use $10 per person) or you can rent a movie for the night for $5. If five people watch it, then cost per use is $1 per person. Or you can buy a movie for $20 and estimate how many times each of your family members or friends will watch the movie to figure out cost per use. It is a great comparison tool. Let’s say you want to spend an afternoon out on a summer day. You can go to a state park whose admission is $5 per carload (or $1 per person for a family of 5) or you can go to a museum which costs $6 per adult and $2 per child for a bit over $3 per person for a family of 5.

Suppose you are contemplating buying a high-end wooden swing set. You might shell $1200 to buy one, which is a lot of money up front. But suppose you have 3 children and your oldest one is 5 years old and the youngest is 1. You will probably be able to use that swing set for about 10 years, so the cost per use is $120 per year. If it will entertain 3 children and some of their friends all summer long year after year, then it’s actually not such a bad deal. Compare that to the cost of a swimming pool, which might only get used 3 months per year in northern climates. The cost per use is much higher. Or compare it to the the cost of a swim club membership at $5000 over the course of 10 years for a yearly fee of $500.

Cost, of course, is not going to be the only factor in your decision-making. Sometimes interests carry more weight. If your three children love to swim and wouldn’t be happy without being in the water all summer, then the swim club membership may be more worth it to you than a playset. Only you can decide what is worth it to you, but by figuring out a cost per use of the item or event, it puts the things you are comparing on a level playing field.

In Real Life (IRL) – The idea for this post came to me yesterday when I was pulling our moonbounce out of our garage. I found this particular moonbounce for $25 new in box at a local Goodwill. My husband didn’t want me to buy it because it would be one more thing laying around our garage (which it is). And I actually didn’t. I left the store, went back to work, looked the item up on the computer, saw that they sell for over $200 and went back to the store to buy it. Luckily it was still there! This was over 5 years ago.

I cannot begin to tell you the great use we have gotten out of this $25 purchase. We have probably used this moonbounce more than 25 times to date - for birthday parties at our house, barbeques with friends, playgroups, and regular everyday use. Cost per use is already at the under $1 mark. I probably never would have bought one for full price, but now owning it, I think it would be worth it even for a couple hundred dollars. I like to do birthday parties at home and a moonbounce adds an extra “Wow” factor to a party. For three kids over the course of 8-10 years, we could clearly get more than 25 birthday parties out of it. Even a $250 moonbounce would work out to only $10 a pop at that rate, while renting a moonbounce is at least $100 for a single weekend.

I do a cost-per-use with classes as well. At young ages, my kids aren’t picky about what they do for fun. While a professional puppeteer would truly delight them, an amateur one would be almost as good in their eyes. Our county recreation center has a music class geared for young children 2-3 years old. The cost is $53 for 8 classes or just under $7 per class. Our community center offers a music class a their site that is taught by a private company. For 8 classes, the cost is about $160. While I have heard great things about the music class, I cannot justify paying $20 per hour for a class for a toddler. And I don’t think my kids would get 3 times the enjoyment out of it. I don't have to tell you which class we are signed up for this summer. In almost all things I do, I try to figure out the cost per use. Many times it's just an estimate, but it gives me a good idea of the true cost of an item or event. And then I can decide whether it is worth it to me to purchase it or not. For other frugal tips, check out Life As Mom.

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