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Cost per use: The concept that will save your checkbook

'Cost per use' is the idea that the value of an item is directly related to how much use you get out of it. The more use you get from an item, the more you should expect to pay for it. The 'sweet spot' of a purchase, then, is the one that has the most uses for the cost.

By Guest blogger / July 31, 2012

In this May 2012 file photo, David Lee shops at a Costco Wholesale store in Portland, Ore. Buying in bulk is a good example of exercising Hamm's 'cost per use,' principle – one buy gets you several uses.

Rick Bowmer/AP/File

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Most of the products we buy – everything from toilet paper and peanut butter to DVDs and board games – are purchased with the idea that we’re going to use them some number of times.

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The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.

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Take a jar of peanut butter. When we have a jar on hand, we’ll get it out of the cupboard, remove a bit for a sandwich or something else, then put it back. Over the course of that jar, we’ll get some number of uses out of it.

The same is true for the toilet paper. Each time we use that roll, we deplete it of a few sheets. Over the course of a roll, we’ll get some number of uses out of it.

With other items, such as a knife, I hope to get a very large number of uses out of it.

In each case, a big part of the decision to purchase the item comes from the idea of “cost per use.” In other words, how much do I have to pay for each use I’m going to get out of that item (before it spoils or breaks)?

“Cost per use” is a powerful way to look at a lot of purchases.

For consumable goods (like peanut butter and toilet paper), it’s pretty straightforward. If I will get 30 uses out of the small jar (which costs $1.99) or 100 uses out of the large jar (which costs $4.99) before it goes bad, the cost per use shows me that the large jar is the better deal (7 cents per use versus 5 cents per use). On the other hand, if I can only get 50 uses out of the big jar, then the small jar is the better deal (7 cents per use versus 10 cents per use).

In other words, the value of an item is directly related to how much use you get out of it. The more use you get from an item, the more you should expect to pay for it. The “sweet spot” of a purchase, then, is the one that has the most uses for the cost.

With some items, like the aforementioned DVD and board game, our uses tend to take place over a period of time. A game of Power Grid might take us an hour and a half, for example, while watching an episode of Curb Your Enthusiasm from your DVD set takes thirty minutes. In both cases, you might do the same thing multiple times. For items like this, where each use requires a notable time investment, I like to use the similar concept of “cost per hour.”

The ideas of “cost per use” and “cost per hour” lead to some interesting conclusions.

First, buying in bulk is almost always a winner unless the item can spoil. If you’re buying a consumable good that can’t ever go bad, like toilet paper, you’re almost always better off buying items in bulk.

On the other hand, unless you’re going to use it frequently, you’re often better off buying the small version of consumable goods that will spoil. A gallon of milk might have a lower cost per ounce, but if you take that gallon home and it expires before you can use some of it, it’s actually not going to be worth using.

Researching reusable items pays off. For instance, if you’re about to buy a new set of pans and one of them has a history of having handles break or having the Teflon coating come off, that item is going to have a much higher cost per use and thus isn’t a good bargain. Know what you’re buying, particularly in terms of reliability, before you make a purchase. The more reliable an item, the lower the cost per use is.

Trying before you buy also pays off. If you’re going to buy a television series on DVD, try to watch at least some episodes of it before you buy the set. Are you really going to watch those episodes multiple times? If you’re not, the cost per use might be cheaper to rent them somewhere. The same is true for a game: will you actually play it a lot, or will the game get boring quickly? You can find out by looking for opportunities to play it a little before you purchase it.

Before you go to purchase an item, ask yourself how much you’re actually going to use it before it goes bad or it ends up in a yard sale. An honest approach to that question will save you money, time and time again.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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