I saved $8832.00 over the weekend whilst buying a very expensive light bulb and it got me thinking about the similarity of
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Have you bought light bulbs recently?
What a challenge. So many choices make choice difficult. I had one of those lightbulb moments whilst shopping for light bulbs and I want to share the experience.
“Not Buying Wisely Costs More in the Long Run” (Jason, 2014)
There I was, in the light bulb aisle asking myself, “Why should I buy a $19.98 bulb when I could buy one for .99c”. which led to “Actually, why would anyone spend $20 on a light bulb?”. How can I justify spending $20 on a feature-rich light bulb? I just want light, so I don’t run into things.
Buy the Cheap Bulb and Save Money. Right? Wrong.
All purchasing decisions should be based on sound (think Global Financial Crisis people) reasoning. It doesn’t need to be complicated but I recommend all your future light bulb purchases are analyzed and checked against a solid Return on Investment calculator.
Analysing a Light Bulbs Return on Investment
Put simply I divided the purchase price of two different bulbs(.99c Standard vs $19.98 LED) by expected life-span and then multiplied this by their respective annual running costs.
The results were staggering.
I could buy 20 standard bulbs for the same price as 1 expensive bulb. True. However, our standard bulb will only last 1000hrs whilst our $20 bulb should easily last 15,000hrs. This brings the cost of the expensive bulb down to $1.32 per 1000 hrs of usage. Sweet.
This means our bulbs are actually priced similarly over the lifetime of the bulbs.
Our $20 bulb is promoted as energy efficient and uses 80% less energy than our cheap bulb. Over a year with the lights on 3 hours a day our standard bulb costs $22.20 and the expensive (this is now our value for money LED bulb) only cost $3.80. The standard bulb costs $18.40 more a year to run!
Which may not sound like much in dollars and cents but that is an increase of 484% and if we multiply this by 20 years I’m actually wasting $368.
Conclusion Pt 1
Our expensive LED bulb is actually better value if we can look past its purchase price and take into account the impact of using the bulb.
What about Opportunity Cost?
What if we throw Opportunity Cost into the mix? And by this I mean what could I better spend my money on if I weren’t wasting it on cheap light bulbs. I could easily buy 25 bottles of the Dashwood Sauvignon Blanc at $10.99 a bottle. With change for pork scratchings. Poor use of opportunity cost some of you are saying. (Come on; Dashwood is a very good wine)
What about if I convert all 24 bulbs in my house to energy bulbs. The initial cost of $479 is paid off over 13 months and over 20 years I am saving $8832.00. Which is 803 bottles of Dashwood or the budgeted cost of the extension out the back of my house.
Conclusion Pt 2
The opportunity cost of buying cheap light bulbs is the cost of renovating my house. That pesky .99c light bulb!
Conclusion Pt 3
The key to any purchase is identifying the potential costs and benefits. What was your reason for upgrading your smartphone? Is the phone earning you extra revenue, saving you admin costs or just an additional (fancy) business expense.
When a business makes a purchasing decision, like buying back office travel software, you should be running a very cold ruler over the Return on Investment potential.
Your travel software solution will come at a cost but you should be looking for that 484% return. It shouldn’t be about how much the software costs but how much your business benefits. If TourWriter can save you 1 hour a day that could be between $3000 – $5000 a year. We aim to save you 4 hours a day.
If you are asking, “How can I justify spending money on TourWriter?”, let’s talk. We are here to make your business more efficient, saving you time and money along the way.