Tuesday, April 15, 2014

The Product Return Ratio

Most of us reading this article have limits.

We have limited time
We have limited money

It is also quite possible that based on our desires and needs we have an almost infinite number of things or services that we feel we would like to experience.

And contrary to popular supposition  Agata and Marcus's time and money are most definitely finite!

So when we consider a new purchase we consider the

Product Return Ratio

The PuRR  as I like to call it.  We evaluate a product on its cost (C) relative to metrics

a)  Cost / Time Used
b)  Cost / Money Saved (alternative opportunity cost)
c)  Cost / Regular Running & Maintenance costs

The Holy Grail might be

1. A product with a low initial cost
2. That lasts for a long time
3. Is used daily
4. Has low running costs (both time and money)
5. Has minimal environmental damage
6. And if not used has costly alternatives
7. Low fragility cost: Use it and forget about it (ease of continued use)

Example#1: Bicycle So for me a bicycle is a good example of a positive 1-6 compared against a motor car, there is really no comparison.  Unfortunately a car can do things a bicycle cannot do, for example travel long distances, use in bad weather conditions, carry loads.  So a bicycle can never be a straight replacement.

Example#2: Dishwasher
1. Cost about 400GBP in the UK  (or in Switzerland about 1000 GBP for the same item!)
2. Should last at least 1500 hours, say 3 years
3. Yes, used daily
4. Running costs are water, electricity, detergent : say 0.5 GBP  (or less in fact)
5. 20 litres water and 2KWh per wash cycle
6. Hand washing is not costly, but your time is. The cost per day: capital + run cost is about (400/365*3) +0.5 =  0.86 GBP/day.   So if you would be prepared to pop around next door and wash your neighbours dishes for about 1GBP, then maybe stay home and don't have a dishwasher

Example#3:Luxury trip for 2 to CES Las Vegas
1. Cost of 2 business flights to Vegas,  5 days accommodation, food,  = 9000 GBP  
2. Lasts 6 days
3. Used for 6 days
4. Running costs negligible as CES trade show is 100% entertainment
5. Hmm.  Flying to the USA and back for 6 days cf. doing nothing has high Environmental impact
6. Alternatives might be CES Europe, YouTube, the latter is free!, but the downside is that there is no experience.

So the next time Agata and Marcus spend 4000GBP each on a bicycle that might last between 5 and 10 years we would argue that it is a more balanced investment than the most pleasurable 6 day all expenses paid to CES.