Have you ever saved for weeks on end for the perfect shirt, hat or pair of shoes, only to have it still sitting in your cupboard weeks later? Cost per use is one of the best ways to determine how much value you are getting out of every purchase and can ultimately help you save money.
Quality vs quantity
Say you bought a brand-new pair of shoes for $150 but have been waiting for the perfect event to wear them to. Cost per use would determine that on the first wear, your shoes have cost $150. However, the second time you wear your new kicks, they have cost you $75 per use.
Each time you wear the shoes the cost per use reduces based on the formula:
Cost per use = Purchase price/number of uses
Each time you shop, you are faced with a decision. In order to save money, you usually have to choose between quality or quantity. While both have their merits, deciding which to go with can make or break your budget.
If you prefer quality products that will last, consider the above shoe scenario. By spending $150 on a pair of shoes, you could potentially be foregoing 3 pairs of cheaper shoes at $50 each.
If the cheaper pairs each last 12 months, your $150 pair would have to withstand 3 years in order to make your purchase cost effective. While this might seem like a long time, with the extra quality they may deliver (and by taking good care of them), they may last even longer.
On the flip side, sometimes the perceived quality doesn’t make up for the additional cost.
When purchasing from the supermarket, buying in bulk can often mean a significantly reduced cost per use, helping you to save money. Deciding whether to choose quality or quantity, the decision should centre around how much use you will achieve from a product.
Saving on subscriptions
If you are paying a monthly subscription for a streaming service, consider how heavily you use it. Say you’re paying $11.99 monthly to Spotify for their music streaming service. You will continue to pay $11.99 regardless of how many times you listen to music in a given month.
For a heavy listener, they might stream Spotify for 20 hours each week. Their cost per use would be about 15c per hour (80 hours streaming each month @ ~$12 month). This is why many people find streaming to be more accessible than purchasing songs, movies or TV shows, as libraries full of millions of hours of content are available on demand.
The subscription model makes more sense when you use a service heavily over the course of a month. An easy way to track what you’re getting out of the money you’re spending, and potentially start saving, is to keep tabs on how frequently you use a service. If you find your Audible account constantly accruing credits month after month, consider if your subscription is still worth it, or if you need to get back into listening to those sweet audiobooks again.
About that gym membership...
Similarly, if you’ve been paying for a gym membership thinking that it will motivate you to wake up early and get that summer bod into shape… try again.
Gym memberships are generally one of the least valuable when it comes to cost per use. With the cost of some gym memberships ranging between $40-$100+ per month, a study found that there is a large difference between how frequently a gym member thinks they will work out (9.5 times per month) versus their actual gym attendance (4.17 times per month).
If you’re paying $50 each month for a gym membership and only managing 4 or 5 workouts each month, each entry is costing upwards of $10 (for those gym junkies getting a workout in most days, cost per use for a $50 monthly membership reduces to $2 per entry or less).
As for your car
If it is sitting in the garage and only used on weekends, calculate how much you spend on registration, insurance, pink slips and petrol (if your car is on finance, add that in too).
Once you realise how expensive owning a car in Australia can be, other options such as renting a car on the go or ride sharing becomes an attractive alternative. Public transport costs are also comparable, so crunch the numbers on how much your trip costs between Point A and Point B to see what mode of transport is the most cost effective.
Cost per use can be a great way to help you save money and differentiate between perceived versus actual value. Next time you are spending money on a new subscription or a new product, do some quick calculations to make sure you’re informed and making the most of your purchasing power.
The Spaceship Universe Portfolio is invested in Spotify at time of writing.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.