Lending Club Blog

Price Versus Cost

When making purchasing decisions, we typically look at price rather than at cost. Both are important, but paying the lowest price often ends up costing us more.

Rather than looking at the price of an item, consider the cost of the need it hopes to fulfill. By thinking about paper towels in terms of dollars per spill, instead of dollars per towel, we can see the difference clearly illustrated. Low-cost paper towels are simply not as effective as their more expensive counterparts. Even if one brand is half the price, if you use more than twice as many, they actually cost more. Taking this example even further, the well-informed consumer might splurge for a reusable chamois that is not only more cost effective but also considerably more environmentally friendly.

While paper towels are a simple example, cost comparisons can be used for any purchase where price comparisons are normally done. Many times, the recurring cost of an item comes into play. You might not choose a less expensive printer if you found out that its replacement ink was significantly more expensive than for a competing product. Purchasing a less expensive appliance that was also less energy efficient could end up costing more in a similar manner.

Your analysis might not show that a Mercedes costs less than a Kia, but it will probably show that their costs are much closer than their prices. Paying more for a higher quality item is often a wise investment. At the very least, performing cost comparisons instead of price comparisons will leave you in a better position to make an informed purchasing decision.

Thursday, August 28th, 2008 at 10:45 am

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