Dubai: Would you choose a Dh2,000 pair of jeans over a pair that costs Dh200? If not for jeans, would you spend more if it was say a travel bag? Would you shell out more money for a bigger brand or better quality? While your decision depends on different factors, there’s a way to help take a call.
“One method to evaluate a purchase is to estimate its ‘cost per use’, rather than focus on the purchase price,” explained Dr. Khalid Essaye, an Abu Dhabi-based researcher specialising in consumer spending. “Simply divide the purchase price by the number of times you'll use the item.
“The estimation puts hard numbers to what’s often qualitative in your mind and consistently proves to be a great shoppers’ aid in deciding whether to buy an item, comparing possible purchases, evaluating an upgrade in a product or deciding between subscribing and paying as you go.”
While your personal needs will help determine how often you plan on using the coffee maker, the lesser the number of times you use it, the costlier the item will get on a daily basis. This, according to financial coaches, is what helps you take a more informed decision when spending big.
Similarly, a Dh500 designer pullover can end up being a better deal if you plan to wear it once every week when compared to a flashy-coloured dress or suit you picked up for Dh1,000 that might be worn only once a month or even less. This way the ‘cost-per-use’ formula can also help you save.
Effective in making major purchasing decisions
‘Cost–per-use’ can be an effective way to make major purchasing decisions, particularly if you often find yourself overspending on “wants” over “needs”. But even if you don’t frequently overspend, it can be hard to decide how much you should spend on purchases regardless of how much it costs.
“It’s easy to waste money on things that don’t bring us value. Consider how much use you’ll get out of your purchase or ‘cost per use’ as a way to determine if spending more makes sense. Value, not low prices, should be your focus when shopping,” said UAE-based financial planner Andrea Barbara.
“Still, the cost-per-wear calculation may only make sense for those consumers who can afford to prioritise quality and versatility over price. So it’s important to be a conservative shopper as studies show that consumers, especially if they're excited about a purchase, tend to overestimate use.”
Daily use items do well in a cost-per-use analysis
Let’s say you buy a bigger, better computer monitor that costs Dh100 more and use it daily for four years, your additional cost per day is 7fils. But for an infrequently used Dh1,000 exercise equipment or gym membership you may use 10 times a year, it will cost you more – at Dh100 per use.
But what about big-ticket items like a buying a car? The same principle can be applied to that too. For instance, renting a car on the go or ride sharing becomes cost effective compared to buying a car if you only plan on using it during the weekends. The cost-per-use rises, the lesser you use the purchase.
“Even with big-ticket purchases, you can weigh your options by first analysing the cost-per-use before you end up buying it. It will not only help save, but also curb impulse spends by forcing you to think twice and realistically gauge if your budgets can take it,” said Barbara.
Shoppers now willing to spend more on value items
As cost-per-use enables you to prioritise quality over price, recent retail surveys also show a rising consumer trend in line with this change in preference when shopping. “The average global shopping order is going up currently, with shoppers buying fewer but costlier items,” noted Essaye.
According to global market research firm Circana’s Retail Tracking Service, higher retail prices are outpacing lower priced items over the past 12-month period ending in June, indicating that higher price brands drove growth. However, higher prices doesn’t necessarily imply quality.
“While shoppers are being more considerate about every purchase and being willing to spend only if they get value, they need to always keep in mind that price and quality aren't always linked. In fact, some retailers may be using any excuse to sell higher price goods to dump old stock,” added Essaye.
While shoppers are being more considerate about every purchase and being willing to spend only if they get value, they need to always keep in mind that price and quality aren't always linked
Cost-per-use is calculated by dividing the item cost by total estimated uses. An item that costs Dh365 used every day for a year would be Dh1 per use. Another costs Dh365 used once would equal Dh365 per use. The same price is paid upfront for both, but one has a far more lasting effect and usage.
If you make this calculation a routine habit when shopping, it can help you prioritise affordability over convenience, especially if you find yourself doubting on whether or not you should overspend on any purchase – be it or big-ticket item or an everyday item you would like to splurge on.
“Although we often look at convenience when deciding what to buy, what services to use, and where to go shop, the question to ask yourself is, "Does convenience increase my cost per use but not give me additional value?," Barbara added.
“Before parting with your money, apply the cost per use formula to your purchase. This way you’ll make fewer wasteful decisions and more great money decisions – like investing in a big-ticket purchase that increases in value over time like a painting.”
So while cost-per-use can help you work out how much your purchases actually cost, you might also think you're getting more value than you actually are, and this could free up extra room in your budget for anything you may or may not like to invest for your future.