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How Not To Waste Money: Use The Cost Per Use Formula
How Not To Waste Money: Use The Cost Per Use Formula
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Money Management

How Not To Waste Money: Use The Cost Per Use Formula

Money254
Eunniah Mbabazi
November 1, 2021

Have you ever saved for months on end for a perfect car for you? One that performs just the way you want with a sleek design, only to have it still parked in your garage or parking space weeks after getting it? 

Seems like a waste of money, doesn’t it? Because why would you buy an expensive car only to have it parked instead of using it often. A better option could have been getting a cheaper one that could move you efficiently or hire a car every time the need arises.

Cost per use is among the best methods to help you realize how much value you would be getting out of a product and will eventually help you save money by making effective purchases.

It is so easy to splurge money on items that won’t give us the value we want for our money. With so many goals to fund like paying off bank or student loans, trying to create an emergency fund and saving some money for vacations or retirement, every decision to spend should count. We wouldn’t want to make poor choices.

The Cost Per Use Formula

This formula is very easy to remember and apply. All You have to do is divide the total cost of the product by the frequency that you anticipate using it.  For example, a Ksh365,000 item being used every day for a year will have a cost per use of about Ksh1000 each day. Of course, assuming it is not a leap year.  And if it is used every day for the second year, the cost per use would lower to Ksh500.

I bought an instant shower heater. Since I bought it I have tried to use it twice only. It heats the water excessively so I can’t have a proper shower. It does this because of the little pressure the water has. That’s just 2 times and I haven't used it again. At a price tag of Kss5,000, I calculate the cost per use as Ksh2500. That’s extreme!

Compare that instant shower’s cost per use to a Ksh1500 electric kettle I purchased and have used every day for a year, heating water for bathing, cooking, and other uses. The electric kettle proved more useful and cheap and its cost per day-use was approximately Ksh4.10. 

In other words, the value of a product is directly related to how much use you’ll get out of it. The more uses you get from it, the more money you should expect to spend on it. It, therefore, goes without saying that the best deal gotten from a purchase is one that has the most uses for its cost.

That is how simple it is.

The concepts of “cost per use” and “cost per hour” have led to some interesting conclusions among people.

First, buying products in bulk is almost always a winner unless the item is highly perishable. If you are buying goods that cannot go bad, like stationary, dry foods and cereals or serviettes etc., you are always better off buying them in bulk.

On the other hand, you are most likely better off buying consumable goods that are perishable or will spoil fast in small amounts unless you’re going to use them frequently. Take milk for example. Buying a 20-litre jerry can of milk might have a lower cost per litre, but if you take that jerrican home and the milk goes bad before you use some of it, it is not going to be worth it.

Reusables

Researching reusable items is rewarding. For example, if you are about to purchase a new set of hotpots and one of them has a history of breaking locks or having the inside reflective surface come off, that hot pot is going to have a higher cost per use and therefore isn’t a good bargain. You have to know what you are buying, especially in terms of reliability, right before you decide to buy it. If the item is more reliable, it would then have a lower cost per use.

Try it First, Buy Later

Trying a product before you buy it also pays off. If you are going to get a car on hire purchase or buying it with a single payment, try to at least get a test drive on the tarmac and other terrains that are similar to the ones you would expose it to in your errands just to get a feel of it. Is it user friendly, fuel efficient enough to get you to use it often? 

If it is not, the cost per use might be way cheaper to hire it for a particular day of use. The same is true for electronic equipment like a home theatre system: will you use it a lot, or will the sound from the system get boring quickly? You can try to find out by testing the sound of your friend’s sound system if it is similar to the one you desire before you make a purchase. 

So before you purchase something, ask yourself how often you are going to use it before it expires or ends up being sold for lack of use. Being honest with yourself to this question will save you from wasting a lot of money in so many instances.

WRAPPING UP

As we wrap up today’s topic, sometimes we’ve got to factor in convenience. Is it worth paying extra money for a slightly easier thing? For me, I don’t think I’d mind taking three public transport vehicles to work every day versus taking an expensive taxi ride that takes a shortcut that has less traffic. It does not at all bother me. I simply leave home a little earlier.

Do you end up paying for conveniences that matter less to you? Ask yourself each time, "Does this convenience I’m paying for increase my cost per use without giving me additional value?"

Before taking out your hard-earned cash, use the cost per use formula to assess your purchase. Hopefully, you will make fewer money-wasting decisions like “my way-too-hot shower heater” and more great money decisions like “1-year-of-water-heating functional electric kettle.”


Eunniah is an experienced business writer and editor. She is also a published author with two titles under her belt; Breaking Down and If My Bones Could Speak. You can find Eunniah on Twitter @Eunnyversal

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