cheryl
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When Buying in Bulk Is a Mistake - Intelligencer
I like the way Andrew Tobias talks about bulk buying in The Only Investment Guide You’ll Ever Need: You can think of each bulk purchase as an investment, with a return equal to the savings you accrue by not paying a higher unit price for smaller purchases. If you lay out $110 today to buy a 12-bottle case of wine you’ll drink over the next month, instead of buying bottles one at a time for $10 each, that’s like earning a $10 return on a $110 investment in one month. On an annualized basis, that’s a rate of return well over 100 percent — far better than the stock market.
But that analysis relies on a few assumptions, the most important being that you will use the items you purchase. If you let products spoil, or you decide you don’t like them anymore halfway through the box, or if you forget what drawer your huge package of batteries is in, then you’re not getting as much value out of your bulk purchase as you had planned. Your effective investment return is likely to be negative; you would have been better off paying more per unit to buy less.
Oh, yes, about the batteries: For me, they’re like stamps. I need them very occasionally, and not frequently enough to have a good sense of how many of them are in my apartment and where they are stored. So recently, when the batteries in my bathroom scale died, I spent ten minutes rummaging through various drawers in my apartment, and was only able to find two AAA batteries. I needed four, so I went on Amazon, where you can buy a 48-pack of Energizer Max AAA batteries for $19.55, or 41 cents per battery. That would be about a 16-year battery supply for me, so I decided to buy a 4-pack, even though that meant paying nearly twice as much per battery.
I like the way Andrew Tobias talks about bulk buying in The Only Investment Guide You’ll Ever Need: You can think of each bulk purchase as an investment, with a return equal to the savings you accrue by not paying a higher unit price for smaller purchases. If you lay out $110 today to buy a 12-bottle case of wine you’ll drink over the next month, instead of buying bottles one at a time for $10 each, that’s like earning a $10 return on a $110 investment in one month. On an annualized basis, that’s a rate of return well over 100 percent — far better than the stock market.
But that analysis relies on a few assumptions, the most important being that you will use the items you purchase. If you let products spoil, or you decide you don’t like them anymore halfway through the box, or if you forget what drawer your huge package of batteries is in, then you’re not getting as much value out of your bulk purchase as you had planned. Your effective investment return is likely to be negative; you would have been better off paying more per unit to buy less.
Oh, yes, about the batteries: For me, they’re like stamps. I need them very occasionally, and not frequently enough to have a good sense of how many of them are in my apartment and where they are stored. So recently, when the batteries in my bathroom scale died, I spent ten minutes rummaging through various drawers in my apartment, and was only able to find two AAA batteries. I needed four, so I went on Amazon, where you can buy a 48-pack of Energizer Max AAA batteries for $19.55, or 41 cents per battery. That would be about a 16-year battery supply for me, so I decided to buy a 4-pack, even though that meant paying nearly twice as much per battery.