Passing Over Dollars to Pick Up Pennies
The total cost for the new vendor was $100 in setup costs, plus $20 for the fliers, plus $2,450 for monthly time, PLUS three hours of travel time (at a calculated $100 per hour) plus gas and mileage for 120 miles, at $12. His total cost while "saving a penny" was $2,892.
Across the street at his regular printer, he had zero setup costs on the flier and incurred a reduced cost ($35) of setup for the newsletter, since only the interior content ever changed (and not the covers). So his total cost at the existing supplier was $35 in setup fees plus $25 for one-page fliers plus $2,500 for the monthly newsletter. Total cost: $2,560.
Comparing the total cost of the out of town "deal" resulted in an increase cost of $332 over his regular vendor.Did this small-business owner save the penny or the dollar? He picked up the penny because when he looked at the cost of the "project" he looked only at the per-copy cost of "saving" of one cent per flier and 10 cents per newsletter. Today the same type of analysis occurs when organizations look at their options. Total costs of an opportunity must be considered, not just the obvious ones. Another example of focusing on pennies and spending dollars are the business people that spend money on a "bargain" piece of equipment. They can get a "deal" on a new server, computer, copier, chain saw, backhoe, whatever ... but they have to buy it now or miss the deal. The only catch? They do not need it. Buying the item will not make them more efficient, reduce costs or get more customers. But they saved money on the item. In reality, they spent money that didn't need to be spent. Look at what was spent and not what was "saved." If the business spent $800 on a $1,600 item that can help increase profitability and efficiency, then, yes, they saved $800. But if they spent $800 on something that really wasn't needed, they overpaid $800! Be careful when you are making decisions on how to "save" money, reduce costs and budget for your business. The total cost of any action and its impact financially, operationally and strategically need to be considered. Spending money to improve how your business operates, saves time, increases results for your customers or makes it easier to do business with you is a good investment (if you can afford it), and where you spend the money is truly where it will generate results. A penny saved may be a penny earned; a dollar not spent is 100 pennies saved and earned. >To submit a news tip, email: email@example.com.
Follow TheStreet on Twitter and become a fan on Facebook.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV