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Dont think of price, think of cost per use

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Re: Dont think of price, think of cost per use

#91

Post by Tijdreiziger »

ukoki wrote: post #70
sacred_numbers wrote: post #61

Earlier quoted context omitted.

I see so many people talk about the Boots theory, and while I don't disagree, there's another side to the story. What if you buy a really nice pair of boots that will last a lifetime and then a couple years later you move to a beach town where you wear sandals all day? Or what if you get paralyzed and have no need for durable shoes? The point is that life is unpredictable and both your circumstances and preferences c…

You've perfectly described one half of what makes me uneasy about "boots theory" which is the added risk of making fewer, larger purchases. The other half is that I find that often the more expensive choice does not have as much quality as needed. Boots theory depends on finding product choices where quality (ie durability, ie expected lifetime) increases faster than price. But my personal experience is that quality…

I have heard the advice to ‘buy twice’. The first time you buy a tool (e.g. boots), you’re really just trying it out, so buy a reasonably priced type. If you end up using the tool so often that you want a better one, then go ahead and buy the best type you can afford.

Re: Dont think of price, think of cost per use

#92

Post by kqr »

jay_kyburz wrote: post #88

Here is another take, when I compare two things on price, I take the price difference and apply 5% compound interest on it for 30 years. That about how much I would save if I put the money on my mortgage instead. Or when the mortgage was paid off how much it would earn in my retirement savings. Also, now I have two kids, I always think how much its going to cost my kids. Sure I could buy a $1000 phone now, or I could…

This is a good point raised also by Deming early on in one of his books. The cost of any investment is not just the money spent, but also the risk-free rate compounded on that money over the time the investment is in use.

In periods when the risk-free rate is 2 %, that is what any investment costs you in addition to the principal, as Deming put it poetically, "every day, rain or shine, even on Sundays."

Re: Dont think of price, think of cost per use

#93

Post by markvdb »

dataflow wrote: post #20
AnimalMuppet wrote: post #13

Earlier quoted context omitted.

All true. But if you're one of the folks who regularly buys a new car, you kind of know that. If you're one who keeps a car as long as you can, you know that too. So you can make, not totally accurate calculations, but calculations that are enough within the ballpark to show you whether transit is an economically interesting alternative.

How accurate is "enough within the ballpark" though? This isn't something where an order-of-magnitude estimate or even a factor of (say) 2 error is negligible. Can you really predict the future to within like 10% accuracy? How accurate do you think you need to be? Let's do something resembling reality. Say your subway transportation costs around $13/weekday. (I just looked up a random round-trip BART ticket for the B…

> I'm not saying you can't do the math, but as I see it, every factor adds in such a huge margin of error into both the numerator and the denominator that the result of the computation easily becomes pretty useless.

You just described TCO, unpredictability in TCO, capital intensivity and several kinds of risk. All super useful heuristics to guide a decison. Just don't try to squeeze them into one filter...

Take us deciding on buying a car versus car sharing. We wanted low TCO, low cash flow risk, and low environmental impact. The signal from the low TCO filter was slightly ambiguous, but both other filters were super clear. Car sharing it was.

Re: Dont think of price, think of cost per use

#94

Post by robocat »

OJFord wrote: post #63
robocat wrote: post #55

Earlier quoted context omitted.

> not many people correctly calculate the cost-per-use of their car Cost-per-use by itself is fairly meaningless, costs needs to be compared against value-per-use. What is the worth of: a visit to my friends; taking a surfboard to the beach; taking a load of firewood to my parents; an emergency 2AM visit to a suicidal acquaintance; taking my nephew and his friends to the skatepark; helping a friend move; picking up a…

> Cost-per-use by itself is fairly meaningless, costs needs to be compared against value-per-use. That implies the only alternative is not doing things? You can just order a taxi? I think for many car users the total 'cost per use' of their car exceeds the average taxi fare they'd pay for those journeys. Nevermind considering public transportation.

> You can just order a taxi?

A trip to my parents and back is ~$180 by Uber - I go more than once a week so that would be way more than $10k per year.

And an Uber doesn’t come with a tow ball: I often use a trailer out there or back (I mentioned firewood, but also dump runs and moving stuff from/to storage).

The Uber has a variable wait-time, and is not useful if I have to go anywhere urgently, and an Uber often values my wasted time at $0. Note when I live in large cities I do choose to use either Uber or car, depending on costs versus gains.

An Uber is no use to take my disabled Mum anywhere.

I think it is condescending to suggest whacky alternatives to most people (public transport, taxis, bikes, etcetera). Most people have weighed up the alternatives and made an expensive choice because of the value provided. The majority of people are not wasting money and buying status symbols.

> Nevermind considering public transportation.

Bloody hell, that is a moronically inane comment. I can catch a bus to my parents. There is one bus a day - it arrives there in the evening at 5:30PM, at it leaves from my parents at 7:30AM, and there is a nice long walk at the end, which is fun in a storm. Oh, the bus only runs on weekdays, not the weekends. I don’t get to choose where my parents live. Public transport is never urgent, good luck if my parents need my help suddenly. I can’t transport anything I can’t carry, and it wastes hours of time each way (indirect, slow, annoying).

Public transport has its uses (I do use Christchurch buses), but it simply doesn’t support many uses (a load of firewood), and it takes a lot of time, plus extra risks (the bus at my parents didn’t turn up the other day - I don’t know why).

Did I mention a car has plenty of other uses? My parents are just one of many similarly valuable uses. I do own a very cheap small-engine second-hand car, not a status symbol. Did I mention a car is available at night, when public transport has stopped running?

Edit: PS: this weekend there are 100km/h winds, and driving cold rain. Walking and waiting at busstops can be very very unpleasant in many cities. Perhaps you have access to a metro, but most people don’t.

Edit 2: I hope you are not an engineer. I feel that in my comment that you answered, I said why I use a laptop with Illustrator, and you replied telling me I could use an etch-a-sketch and my mobile phone camera.

Re: Dont think of price, think of cost per use

#95

Post by yourusername »

number6 wrote: post #31
XorNot wrote: post #26

Earlier quoted context omitted.

Same for me: cost per use is helpful to get you thinking about total cost of ownership and product lifetimes. It's a really good way to evaluate how much you should pay for the second purchase of a tool - also whether the price is worth the warranty. My Bosch laser Level for example cost $150 more then the alternative, but came with a 6 year as opposed to 1 year warranty. At a total price of $600, I was buying it at…

And for tools: If you buy the inferior one and then break it or decide to get the upgrade, your cost will be $450 + $600. You will not overpay $150 but $450. Also better tools tend to give you better outcomes.

With tools you can go both ways. Good tools give you better results, last longer and feel better to use. On the other hand they often cost 4x what a cheap tool would cost that you wouldn't wear out as a DIY'er. A no name hammerdrill is €50 and a boschhammer €200. Most homeowners won't wear out the no name drill drilling a few dozens holes in concrete. If you do wear it out your final costs is only 25% higher than if you went for the pro tool to start.

Re: Dont think of price, think of cost per use

#96

Post by ptkd »

lelanthran wrote: post #72
godelski wrote: post #54

Earlier quoted context omitted.

I don't think you're necessarily disagreeing. There's a factor that neither you nor the author are considering: value/$. Author is implicitly assuming that the higher cost equates to a higher value (clearly this is never a linear relationship). So my friends call me the cheapest person they know, but I also think like the author. If there is something I am going to use a lot and the added value helps me, then I'll sh…

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If all you care about is texting, making calls, playing the occasional game[1], browsing the web, doing mobile banking, listening to music, watching videos, using social media, responding to work emails, viewing the occasional PDF, word processed document or spreadsheet sent over email, screenca…

iMessage is a legitimate significant value add to my life. Such a high percentage of my associates have iPhones that having an android is a legitimate harm for interactions (makes you less likely to be added to group chats)

I’m speaking as someone who has used both full time as well

Re: Dont think of price, think of cost per use

#97

Post by vasco »

BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

Do you remember the title of the book?

Re: Dont think of price, think of cost per use

#98

Post by alwayslikethis »

BeetleB wrote: post #69
nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

I find people making the opposite mistake: They take the total cost of ownership, and say that paying an extra $8K for the car is a small fraction of the total cost, and over 10 years that's just paying an additional $2.20 a day, so it's no big deal. $8K is $8K - it doesn't matter if it's all paid in one day, or spread over 10 years.[1] I always notice how they like to look at the cost per day and not, say, the cost…

At current rates of inflation, it is actually quite a bit cheaper to pay over 10 years if you can finance it without much interest. However, your point stands -- this should not be used to justify purchases and to view things as cheaper than they really are.

Re: Dont think of price, think of cost per use

#99

Post by lelanthran »

ptkd wrote: post #96
lelanthran wrote: post #72

Earlier quoted context omitted.

> With your phone, if all you care about is texting and making calls, yeah, you're not getting any added value paying more. If all you care about is texting, making calls, playing the occasional game[1], browsing the web, doing mobile banking, listening to music, watching videos, using social media, responding to work emails, viewing the occasional PDF, word processed document or spreadsheet sent over email, screenca…

iMessage is a legitimate significant value add to my life. Such a high percentage of my associates have iPhones that having an android is a legitimate harm for interactions (makes you less likely to be added to group chats) I’m speaking as someone who has used both full time as well

Sure, but that's a network cost, not a phone cost, same as maintaining a membership to a golf club.

For many people the cost of remaining in an iPhone-exclusive network may be worth the extra money, for others they don't have any opportunity cost to leaving the iPhone-exclusive network.

Anecdotally, I also thought that my iMessage contacts were worth the extra money, until I found out all the people in the network used whatsapp far more frequently.

Turned out, the important conversations weren't happening on iMessage anyway, which was a surprise to me at the time.

Re: Dont think of price, think of cost per use

#100

Post by tremon »

dataflow wrote: post #11
nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

> the capital cost of the car amortized over the years of ownership How many years will I own my car? How do you know? Maybe some folks buy a new car on a regular basis, but others will keep a car as long as they can. The denominator isn't known for everyone here. And then there's inflation, recession, etc. which can make the numerator unclear too.

How many years will I own my car? How do you know?

You amortize the cost over the planned lifetime. If you keep the car for longer than planned, great, you get a free usage extension! If you need/want to replace the car sooner than planned, you need to factor the sunk cost of the previous purchase into the cost/benefit equation of your next.

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