Save Thousands of Dollars a Year When You Understand and Use the Basic Principle of Price Verses Cost
April 13th, 2012 // 10:39 am @ Janine Elias
I have been notorious most of my adult life for not buying anything if it wasn’t on sale. In fact I took such pride in the skill I developed of getting everything I bought at such a discounted price my friends began calling me “Betty Bargain”! One year I was visiting relatives on the east coast I saw my sister in a lovely dress and I asked her how much it cost, she said $169.00. A few months later I bought the exact same dress on sale for $18.99. I bought the dress because of the price not because I liked it. In fact the dress was a bad fit for my body type but the price was so good and I wanted to brag about getting it for so much less. The sad truth is I’ve never even worn this dress! So was it actually a bargain or was it a waste of money?
How many times have you made a purchase based on the price of the item? Do you always weigh the price of the item or service before you purchase it? Have you ever done a price verses cost analysis before purchasing an item? Until recently I didn’t really understand or consider the reality of price verses cost, I had heard the term before but it didn’t really sink in until I began to change my relationship with money. Let’s take a look…
Price Verses Cost : For those of you who aren’t familiar with the concept of price verses cost or haven’t been inspired to apply it to your own life yet lets break it down and really look at how you make your purchasing decisions. I will give you two examples and begin with a story I was listening to Zig Ziglar tell about price verse cost. Zig was telling a story of buying a bike for his son in the 70′s. There was a Schwinn bicycle for $64.95 which was a great deal of money at the time for a child’s bike and there was also another brand of bicycle that was only $34.95 and he and his wife decided to purchase the cycle with the lower price.
Turned out they had to replace the handle bars within the first month of their son riding the bicycle and again in the second month and the price for the handle bars were $9.99 each time. They had to replace the rim of one of the tires on the third month $12.95 and by month six the bike needed a new sprocket for $50.00. Instead of replacing the sprockets Zig and his wife bought their son the Schwinn bicycle at $64.95 and their son rode the second bicycle for ten years. It turned out the bicycle that appeared to be priced less ended up costing them more then the bicycle with what appeared to be the higher price. The bicycle with the higher price ended up actually costing less. The price of the first bicycle was $34.95 and their son used the bicycle for six months at a cost of $11.31 per month. The second bicycle with the price of $64.95 the child rode for ten years with a cost of $6.49 per year.
Another example I can use from my personal experience is purchasing a sweater. Something many of us if not all of us buy each and every year. A few years ago, before I began applying the prices verses cost in my own life, remembering that I never bought anything for myself if it wasn’t on sale, I had bought four sweaters at a significantly discounted price two at $15.99 and two at $19.99 the highest original price of these sweaters was $39.99 for a total price of $71.96 I got four sweaters and was quite proud of myself. Keep in mind these sweaters were on the sale rack and it took me two hours of digging through endless piles of clothes to find these four sweaters. I was able to wear these sweaters for only one season because as I washed them they lost their shape, faded in color, and developed sweater balls.
That same year a friend had purchased a sweater for me as a gift, with the price tag of $119.99 (they forgot to remove the tag). I have worn this sweater for five seasons and it is in pristine condition. It looks the same today as it did the day I took it out of the box and it is one of my favorite sweaters. I wear it on a weekly basis when the weather is cold. In fact I wear that one sweater far more in the season then I wore all four of the other sweaters combined. It turns out the sweaters priced at a low dollar amount ended up costing me far more than the sweater at the higher amount. Had I continued to by discounted sweaters over a period of four years it would have cost me $359.80 in cash and wasted an additional eight hours of my time digging through sale bins, if I were to take into consideration my hourly rate had I been seeing clients for that eight hour time period instead of digging through sales piles the cost of those sweaters would be obscene!
I have come to terms with the reality that I do in fact get what I pay for. The goods and services with a higher price tag end up costing me far less over time and quality is of far greater value to me than quantity. It was a hard and very costly lesson and it took me to view my experiences from many different perspectives before I came to terms with the true meaning of price verses cost. I imagine you might need a bit more to process this concept as well so I will continue to post more about price verses cost.
As you begin to apply this principle you will save yourself thousands of dollars each year as you begin to make more strategic purchase when you weigh the true value of price verses cost of both the small and large ticket items you purchase.
P.S. I spent several hours searching the internet trying to find a video that talked about price verses cost and this was the closest thing I could find to our conversation here… I guess I will need to make a video for this topic and place it on my YouTube channel. I will let you know when I do! This video will give you an interesting break down of how price verses cost impacts the food we eat, it is quite interesting!
Great post! I am just starting out in conmtmiuy management/marketing media and trying to learn how to do it well resources like this article are incredibly helpful. As our company is based in the US, it?s all a bit new to us. The example above is something that I worry about as well, how to show your own genuine enthusiasm and share the fact that your product is useful in that case.