Lets say I can buy 200 of something for $20. but for $60, I can buy 750 of them. How can I quantify the money saved as cost per unit?
Besides the math to determine per unit cost, you might also need to consider the opportunity cost of having so many.
- How long will the bulk supply last?
- Is it something you will get tired of having?
- How much space does it occupy?
- Is it perishable?
- Will it expire?
…
Is it easily repairable?
What’s the percentage of new stock being faulty already?
$20 / 200 items = $0.10 per item $60 / 750 items = $0.08 per item
So your savings are $0.08 - $0.10 = -$0.02 per item.
Total Cost of batch / quantity of items = cost per individual item. 20 dollars /200 items =10 cents per item 60$/750item= 8 cents per item. It will be helpful for you to let this equation roll in your brain for a bit and try to understand why it is true maybe.
Geometrically the same exact idea can be visualized. you can think of total cost $ being the length of a line segment, and the quantity of items as equally split portions of that line seg. If you have a total cost of 1$ (a line seg with length of 1) and get two items, the cost of each item is 50c, or the line will be partitioned equally in two exactly In half. If you had three items the line would be split into thirds and so on.
For cost per unit, you divide the cost by the number of units. $20/(200 units) = $0.10 per unit. $60/750= $0.08, so 2 cents cheaper per unit.
But if you actually only need 50 but can’t resist a “good deal”:
The 200 cost $0.40 per item that you actually need, the 750 cost $1.20 per item that you actually need (plus the cost of storing and at some point throwing out the ones you don’t need).
Division.
Divide $20 by 200 gives you $20/200 = $0.1 = 10¢
Dividing $60/750 gives you $0.08 = 8¢
this is basically the start point and at relatively close scales will work pretty well.
this can also be expressed as a 2 in 10 (20%) bulk discount.
you can add on adjustments if you can estimate other factors like the admin cost (of your time) per transaction, a defect rate cost or spoilage, cost of storage and transportation and so on.
These overheads can sometimes be shared across other products, especially transport and storage.for longer term stuff you might want to translate this into an equivalent annual (or longer ) cost per year/day of consumption that covers expected consumption with your safety margin.
if you need to account for every element of you cost base to the nearest penny then it can get pretty complicated - but if you’re prepared to make simplifying assumptions like:
“It doesn’t spoil over time”,
“I already have some unused space”,
“i don’t need insurance on storage.”,
“i’m going to ignore any adjustments lower than 0.001 cents per unit (a materiality threshold)”Whether those assumptions are a good idea or not, depends upon the wider context.
