I was pondering the above question as I cleaned out a hall closet this weekend and found not one, not two, but 10 sticks of antiperspirant, or at my current pace of use, roughly an 8 year supply. I realized we had so much because a) we often buy in bulk, at Costco b) when there is a really good sale on something, we tend to stock up.
It’s common knowledge that buying in bulk is cheaper, after all this is how grocery stores themselves make money. They commit to a whole pallet of something, and get it for way less than you did. But what is the line for you as a consumer? Is there such a thing of stocking up too much?
By buying in bulk (and by this I also meaning getting several things when they go on sale), you are paying for future use today, with the idea that today’s price is the lowest it’s going to be for a while. But you are also giving up cash that can be used for other things, like investments.
Thinking about this, the maximum number of an item you should buy is the amount you would use before the next time it goes on sale. So if there is a crazy deal on laundry detergent, you first need to figure out how often this sale occurs. Let’s say this really good sale is twice a year. In that case, you should only buy enough to last you until the next sale. Because this is basically a guess, it’s ok to get an extra one for padding. So if you go through a quart of laundry detergent once a month, and the sale is every 6 months, the maximum you should buy is 7.
In another way, there are also diminishing returns on holding the inventory yourself. Even if the sale never happens again, you are basically investing in something that has no value to be gained. So in our previous example, if laundry detergent normally costs $10, and you are getting it on sale for $7.50 (a 25% off sale), and you commit to 7 of them ($52.50), you are tying up $45 in surplus laundry detergent.
Now you’d need to buy it anyway, but let’s suppose you just bought it whenever you needed it. Today it was on sale, but the next 3 times it’s full price, and then a minor sale, and then full price, so $7.50+$10+$10+$10+$8.50+$10+$10 = $66. So your savings by buying in bulk over that time period is $13.50 ($66 – $52.50). Could you have found a way to make more than $13.50 using the $45 you had tied up in this extra detergent?
Of course the above isn’t the best example, because as a reader of this blog, you’re never paying full price for anything right? You should always be using a coupon, waiting until there is a sale, or buying a discount brand.
