Formula for when to buy in bulk

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B4Xt3r
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Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 12:35 pm

Hi All,

I have had something annoy me for a while now, and I'm curious if someone knows the answer. Let's assume that I have buy a certain product and that it is offered at various prices per unit depending on how much of it I buy. The choice is then, should I buy more of the product less often or less of the product more often (well duh).

So what I don't know is the following, and its been annoying me. If my goal is to minimize my total cost to consume such a product, how much of it should I buy when it goes on sale? There should be some calculable number... If there is no bulk discount, then I should not buy in bulk to maximize the the amount of investments that I can make. If there is a huge bulk discount, then I should buy in bulk even though it costs me some investment gains. Since those two expremes show different conclusions, I would expect that depending on the specific discount, I should be able to calculate how much extra I should buy.

Anybody happen to know the formula? If not, I'll do some more thinking.

-B4xt3r

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dm200
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Re: Formula for when to buy in bulk

Post by dm200 » Mon Oct 08, 2018 12:37 pm

Not a "formula" BUT do you use up all of the product OR do you end up having spoilage or ever throw any away?

B4Xt3r
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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 12:52 pm

^Lets assume that you actually use all the product you buy.

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FiveK
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Re: Formula for when to buy in bulk

Post by FiveK » Mon Oct 08, 2018 12:53 pm

If you wanted to take this to extremes, you'd have to include any costs for storing extra quantities, overall and other specific spending constraints, etc.

If the product regularly goes on sale, and the sale discount is larger than your expected investment return, then buy enough at the sale price to cover your use until the next sale.

If you expect this is the lowest price ever, and the discount relative to future sale prices is larger than your expected investment return, then buy enough at the sale price to cover your use until death. But that would be taking this to extremes, so see the first line above....

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PrettyCoolWorkshop
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Re: Formula for when to buy in bulk

Post by PrettyCoolWorkshop » Mon Oct 08, 2018 12:58 pm

The general term for this computation is determining present value of a series of payments. The equation can be read about here: http://financeformulas.net/Present_Valu ... nuity.html

Assuming there is no spoilage, transaction costs or carrying costs, then the only case where a bigger purchase at a lower unit cost is a worse choice is when the interest earned over time by a realistic alternative investment (aka your personal discount rate or interest rate) exceeds the per unit savings. In other words, the money not locked up in inventory is doing work for you.

You can look up the PV() function in excel here: https://exceljet.net/excel-functions/excel-pv-function
It assumes you are making regular purchases and performs the same calculation as the hand calculation linked above. There are other methods that yield the same results- often times I just sum up a series of payments manually so I don't have to remember another dang formula. [i.e. per case 2 of the example below, this manual method would be -1.70 - 1.70/(1.00583^1) -1.70/(1.00583^2) -1.70/(1.00583^3) -1.70/(1.00583^4) ...............-1.70/(1.00583^23) =$-38.19. The 1.00583 comes from 1+.07/12.]

The PV() function assumes your first payment occurs *after* 1 period has elapsed. So for an example case let's model 2 years of consumption. The length of time for our example does not effect the results.

Let's assume that any money Bob doesn't spend on toilet paper is immediately invested in the S&P500 (quite an assumption!), and that he expects this would earn him 7% real annually. He is deciding between buying a $20 case of 48 rolls of T.P. that would last him a year, versus a $1.70 box of 4 rolls every month.

case 1: present value = -20 + PV(0.07,1,20) = $-38.69
case 2: present value = -1.70 + PV(0.07/12,23,1.70) = $-38.19

It can be seen that buying in bulk was not the correct choice in this example, even though it had a slightly cheaper unit price! This is the time value of money in action.
Last edited by PrettyCoolWorkshop on Mon Oct 08, 2018 1:15 pm, edited 3 times in total.
Be greedy and fearful. All the time.

Globalviewer58
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Re: Formula for when to buy in bulk

Post by Globalviewer58 » Mon Oct 08, 2018 1:01 pm

Economic Order Quantity is a calculated value. see the link for details. https://www.dummies.com/business/accoun ... y-formula/

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dm200
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Re: Formula for when to buy in bulk

Post by dm200 » Mon Oct 08, 2018 1:06 pm

On a small scale, I calculated that buying a large bottle of Acetaminophen Costco saved money vs a smaller bottle anywhere else - even if I threw out most of the pills when not usable.

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Re: Formula for when to buy in bulk

Post by tampaite » Mon Oct 08, 2018 1:29 pm

B4Xt3r wrote:
Mon Oct 08, 2018 12:35 pm
Anybody happen to know the formula? If not, I'll do some more thinking.

-B4xt3r
I think the formula is called 'common sense'. That said, buy anything in bulk if you know you'll consume whole of it(everything) and not waste anything.

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Re: Formula for when to buy in bulk

Post by bhsince87 » Mon Oct 08, 2018 1:47 pm

FiveK wrote:
Mon Oct 08, 2018 12:53 pm
If you wanted to take this to extremes, you'd have to include any costs for storing extra quantities, overall and other specific spending constraints, etc.

If the product regularly goes on sale, and the sale discount is larger than your expected investment return, then buy enough at the sale price to cover your use until the next sale.

If you expect this is the lowest price ever, and the discount relative to future sale prices is larger than your expected investment return, then buy enough at the sale price to cover your use until death. But that would be taking this to extremes, so see the first line above....
I agree it's more complicated than just one calculation.

Part of our house is dedicated to storage of stuff (our pantry), but I don't worry about that cost.

Two other important factors for me are my time and having a buffer for emergencies.

I like to keep at least a month's supply of EVERYTHING we regularly use on hand. That's good for potential emergencies/disasters, but also can save extra trips to the store if we run out of something.

And if I can save an extra trip or two to the store by stocking up, that's a big plus in my book.

When we first got married, my wife shopped 2-3 times a week. Now we're down to about once every two weeks.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 2:08 pm

PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 12:58 pm
The general term for this computation is determining present value of a series of payments. The equation can be read about here: http://financeformulas.net/Present_Valu ... nuity.html

Assuming there is no spoilage, transaction costs or carrying costs, then the only case where a bigger purchase at a lower unit cost is a worse choice is when the interest earned over time by a realistic alternative investment (aka your personal discount rate or interest rate) exceeds the per unit savings. In other words, the money not locked up in inventory is doing work for you.

You can look up the PV() function in excel here: https://exceljet.net/excel-functions/excel-pv-function
It assumes you are making regular purchases and performs the same calculation as the hand calculation linked above. There are other methods that yield the same results- often times I just sum up a series of payments manually so I don't have to remember another dang formula. [i.e. per case 2 of the example below, this manual method would be -1.70 - 1.70/(1.00583^1) -1.70/(1.00583^2) -1.70/(1.00583^3) -1.70/(1.00583^4) ...............-1.70/(1.00583^23) =$-38.19. The 1.00583 comes from 1+.07/12.]

The PV() function assumes your first payment occurs *after* 1 period has elapsed. So for an example case let's model 2 years of consumption. The length of time for our example does not effect the results.

Let's assume that any money Bob doesn't spend on toilet paper is immediately invested in the S&P500 (quite an assumption!), and that he expects this would earn him 7% real annually. He is deciding between buying a $20 case of 48 rolls of T.P. that would last him a year, versus a $1.70 box of 4 rolls every month.

case 1: present value = -20 + PV(0.07,1,20) = $-38.69
case 2: present value = -1.70 + PV(0.07/12,23,1.70) = $-38.19

It can be seen that buying in bulk was not the correct choice in this example, even though it had a slightly cheaper unit price! This is the time value of money in action.
I think this was precisely what I was looking for!

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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 2:09 pm

bhsince87 wrote:
Mon Oct 08, 2018 1:47 pm
FiveK wrote:
Mon Oct 08, 2018 12:53 pm
If you wanted to take this to extremes, you'd have to include any costs for storing extra quantities, overall and other specific spending constraints, etc.

If the product regularly goes on sale, and the sale discount is larger than your expected investment return, then buy enough at the sale price to cover your use until the next sale.

If you expect this is the lowest price ever, and the discount relative to future sale prices is larger than your expected investment return, then buy enough at the sale price to cover your use until death. But that would be taking this to extremes, so see the first line above....
I agree it's more complicated than just one calculation.

Part of our house is dedicated to storage of stuff (our pantry), but I don't worry about that cost.
Yeah, I'm not really suggesting storage past filling up the random space in my house/garage, etc.

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Re: Formula for when to buy in bulk

Post by Shallowpockets » Mon Oct 08, 2018 2:21 pm

Ask yourself, when was the last time you actually used a months supply of your stashed stuff? Maybe if you lived through he hurricane in Puerto Rico. Otherwise a months supply is too much. Too much storage.
Then again, you won't be the one rushing to the store and emptying the shelves of everything in anticipation of a hurricane.
Have you calculated your months supply of toilet paper?
Do you have a bunker?

You get bulk in Coatco, but maybe you need a pallet of stuff.
Where is the endpoint of the savings per unit?
As someone said here, there is a common sense approach to this. Not necessarily a mathematical formula.

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PrettyCoolWorkshop
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Re: Formula for when to buy in bulk

Post by PrettyCoolWorkshop » Mon Oct 08, 2018 2:33 pm

Shallowpockets wrote:
Mon Oct 08, 2018 2:21 pm
Ask yourself, when was the last time you actually used a months supply of your stashed stuff? Maybe if you lived through he hurricane in Puerto Rico. Otherwise a months supply is too much. Too much storage.
Then again, you won't be the one rushing to the store and emptying the shelves of everything in anticipation of a hurricane.
Have you calculated your months supply of toilet paper?
Do you have a bunker?

You get bulk in Coatco, but maybe you need a pallet of stuff.
Where is the endpoint of the savings per unit?
As someone said here, there is a common sense approach to this. Not necessarily a mathematical formula.
As long as storage is not scarce in your household, I think a common sense approach leans towards getting a lot of stuff in bulk. It means you have less little niggling things to worry about in the back of your mind- am I out of shampoo? Am I out of shaving razors? etc. It is easier and more efficient to grab 'em out of your closet than to remember them at the store. So by my reasoning, if bulk is cheaper anyway, go ahead and do it, up to the point of diminishing present value.
Be greedy and fearful. All the time.

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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 2:34 pm

PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 2:33 pm
Shallowpockets wrote:
Mon Oct 08, 2018 2:21 pm
Ask yourself, when was the last time you actually used a months supply of your stashed stuff? Maybe if you lived through he hurricane in Puerto Rico. Otherwise a months supply is too much. Too much storage.
Then again, you won't be the one rushing to the store and emptying the shelves of everything in anticipation of a hurricane.
Have you calculated your months supply of toilet paper?
Do you have a bunker?

You get bulk in Coatco, but maybe you need a pallet of stuff.
Where is the endpoint of the savings per unit?
As someone said here, there is a common sense approach to this. Not necessarily a mathematical formula.
As long as storage is not scarce in your household, I think a common sense approach leans towards getting a lot of stuff in bulk. It means you have less little niggling things to worry about in the back of your mind- am I out of shampoo? Am I out of shaving razors? etc. It is easier and more efficient to grab 'em out of your closet than to remember them at the store. So by my reasoning, if bulk is cheaper anyway, go ahead and do it, up to the point of diminishing present value.
+1 (I think).

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JoMoney
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Re: Formula for when to buy in bulk

Post by JoMoney » Mon Oct 08, 2018 2:35 pm

Shallowpockets wrote:
Mon Oct 08, 2018 2:21 pm
Ask yourself, when was the last time you actually used a months supply of your stashed stuff? Maybe if you lived through he hurricane in Puerto Rico. Otherwise a months supply is too much. Too much storage.
Then again, you won't be the one rushing to the store and emptying the shelves of everything in anticipation of a hurricane.
Have you calculated your months supply of toilet paper?
Do you have a bunker?

You get bulk in Coatco, but maybe you need a pallet of stuff.
Where is the endpoint of the savings per unit?
As someone said here, there is a common sense approach to this. Not necessarily a mathematical formula.
:thumbsup

For myself, I would say that most of the products I regularly use and know I will use a month from now are either things like food (that will spoil and difficult to store) or small dollar item toiletries that wouldn't move the savings needle even if they doubled in price. Generally, if I'm buying toothpaste and I notice it's on sale, I'll buy a few extra, but even all these little things aggregated, the difference in price wouldn't buy me lunch at the end of the year. It would be interesting if there were expensive durable items that went on a big sale, but I doubt 10 years from now when my TV breaks I'll want to use a TV built on 10 year old technology.
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Elsebet
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Re: Formula for when to buy in bulk

Post by Elsebet » Mon Oct 08, 2018 3:59 pm

I only buy things in bulk at Costco that I know I will use entirely before they are no longer good to consume. My husband built us a pantry under the stairs in our mud room and in it I have:

- canned tomato products (diced & paste) that I use for indian/mexican/italian sauces, we go through many cases of these per year
- canned beans, vegetables, fruit, mushrooms, and soups
- honey (I use this every morning in my tea)
- Cholula hot sauce (use this all the time)
- condiments like ketchup/mustard/soy sauce
- salad dressing
- dried pastas
- dried beans/rice/grains/lentils/mushrooms
- cooking oils
- staples like flour/sugar/salt/pepper
- cleaning/paper products

This pantry for me doesn't just have a financial benefit, I feel mentally better that in the case of an emergency we would survive for at least a month or two without buying any food. I don't really time the purchase of these since Costco usually always has good prices.

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Re: Formula for when to buy in bulk

Post by Jack FFR1846 » Mon Oct 08, 2018 4:10 pm

You can go nuts with this. The VP of sales at a company I worked for had twins. He went to the low cost supermarket and talked to the manager and bought enough diapers for the twins for as long as they would need them and took them in a single purchase. Saved more than anyone ever could with sales and coupons.

On the other hand, my wife and I were doing some comparisons. She was shopping at BJ's (similar to Costco) and I walked over to Stop & Shop with the same list. I came back with the prices marked down. Stop & Shop was cheaper. And they're waaaaay more expensive than Market Basket.

Assume nothing. You could go through all the forumlas on sale stuff and still end up more expensive than Market Basket any day of the week.
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B4Xt3r
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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 4:31 pm

Jack FFR1846 wrote:
Mon Oct 08, 2018 4:10 pm
You can go nuts with this. The VP of sales at a company I worked for had twins. He went to the low cost supermarket and talked to the manager and bought enough diapers for the twins for as long as they would need them and took them in a single purchase. Saved more than anyone ever could with sales and coupons.

On the other hand, my wife and I were doing some comparisons. She was shopping at BJ's (similar to Costco) and I walked over to Stop & Shop with the same list. I came back with the prices marked down. Stop & Shop was cheaper. And they're waaaaay more expensive than Market Basket.

Assume nothing. You could go through all the forumlas on sale stuff and still end up more expensive than Market Basket any day of the week.
You saying that market basket was the cheapest grocer you know about?

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Re: Formula for when to buy in bulk

Post by Smoke » Mon Oct 08, 2018 5:07 pm

I never buy in bulk... anything, anymore.
I may purchase one extra of something/anything I need to avoid the ... dam I need another one now so it's out to the store NOW to get one.
Too many times I/we (wife and I) have changed diets and thrown out multitudes of stored extras we now no longer eat.
Too may oil filters bought extra thinking the 21 yr old car will live forever, now gone, 5 oil filters sitting on the shelf in the garage with no use for anything but the car no longer owned.
I have come to find that for every item we saved on by buying in bulk, there were 2 or 3 we lost on as we no longer needed them.
Everything considered, I buy when I need it.

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Re: Formula for when to buy in bulk

Post by Mike Scott » Mon Oct 08, 2018 5:43 pm

There are a few things I can only seem to find at Walmart. When I do finally get desparate enough to go, I buy enough of everything on my list to avoid going back for a long while. We keep a generously stocked pantry and freezers. A once a week shopping trip only takes a few minutes for fresh stuff and restocking from the printed inventory list plus any special requests for new recipes, impulse buys or unadvertised sales. During the week, we only cook from what we have. Any thing else has to wait until after the next shopping trip. We keep many varieties of spices, grains, beans and rice which are usually ordered in bulk once a year when we will clear out any odds and ends and try to use them up as well as reorganize the space. It's nice to have a variety of things on hand and be able to have space to handle half a beef or a few cases of canned items that are on a really good sale. There is no formula here. It's about price and opportunity as well as our convenience. I'm not unaware that we have a couple of months or more of food on hand at any given time but that's not really the goal.

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Re: Formula for when to buy in bulk

Post by Turbo29 » Mon Oct 08, 2018 6:31 pm

dm200 wrote:
Mon Oct 08, 2018 1:06 pm
On a small scale, I calculated that buying a large bottle of Acetaminophen Costco saved money vs a smaller bottle anywhere else - even if I threw out most of the pills when not usable.
I have discovered most OTC medicines are that way. It is much cheaper to buy the large bottle at Costco and throw the remaining pills out when the expiration date is reached than it is to buy bottles of 24, 50, or 100 at the local drug or grocery store and use them all.

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Re: Formula for when to buy in bulk

Post by B4Xt3r » Mon Oct 08, 2018 6:36 pm

PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 12:58 pm
...
Let's assume that any money Bob doesn't spend on toilet paper is immediately invested in the S&P500 (quite an assumption!), and that he expects this would earn him 7% real annually. He is deciding between buying a $20 case of 48 rolls of T.P. that would last him a year, versus a $1.70 box of 4 rolls every month.

case 1: present value = -20 + PV(0.07,1,20) = $-38.69
case 2: present value = -1.70 + PV(0.07/12,23,1.70) = $-38.19

It can be seen that buying in bulk was not the correct choice in this example, even though it had a slightly cheaper unit price! This is the time value of money in action.
Hi PrettyCoolWorkshop,

Can you check my understanding? I want to make sure I grasp the meaning of "present value," which is the first time that I've run across it.

I'm going to reduce the period to one year as an example.

case 1: present value = -$20
case 2: present value = -1.70 + PV(0.07/12,11,1.70) = $-19.76

So pursuing case 2 is "equivalent" to purchasing the same amount of product but at an upfront cost of $19.76. The meaning of present value is the amount that I would have to give, in the present, to incur a the equivalent cost of the 11 payments spread out. Its less than 1.7*12 = 20.4 because I get to invest the $ along the way. Since $19.76 < $20, I should choose option 2 to minimize my costs.

Does it sound like I've got it?

Is $19.76 the current total capital that I would need to pay $1.7 this month, and each of the next 11 month (with the appropriate assumptions you listed)?

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PrettyCoolWorkshop
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Re: Formula for when to buy in bulk

Post by PrettyCoolWorkshop » Tue Oct 09, 2018 7:07 am

B4Xt3r wrote:
Mon Oct 08, 2018 6:36 pm
PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 12:58 pm
...
Let's assume that any money Bob doesn't spend on toilet paper is immediately invested in the S&P500 (quite an assumption!), and that he expects this would earn him 7% real annually. He is deciding between buying a $20 case of 48 rolls of T.P. that would last him a year, versus a $1.70 box of 4 rolls every month.

case 1: present value = -20 + PV(0.07,1,20) = $-38.69
case 2: present value = -1.70 + PV(0.07/12,23,1.70) = $-38.19

It can be seen that buying in bulk was not the correct choice in this example, even though it had a slightly cheaper unit price! This is the time value of money in action.
Hi PrettyCoolWorkshop,

Can you check my understanding? I want to make sure I grasp the meaning of "present value," which is the first time that I've run across it.

I'm going to reduce the period to one year as an example.

case 1: present value = -$20
case 2: present value = -1.70 + PV(0.07/12,11,1.70) = $-19.76

So pursuing case 2 is "equivalent" to purchasing the same amount of product but at an upfront cost of $19.76. The meaning of present value is the amount that I would have to give, in the present, to incur a the equivalent cost of the 11 payments spread out. Its less than 1.7*12 = 20.4 because I get to invest the $ along the way. Since $19.76 < $20, I should choose option 2 to minimize my costs.

Does it sound like I've got it?

Is $19.76 the current total capital that I would need to pay $1.7 this month, and each of the next 11 month (with the appropriate assumptions you listed)?
This understanding is correct.

One caveat I might throw in is that your discount rate might not exactly match the rate of return you expect of your investments. For example, if you ask yourself, "Would I rather have a guaranteed $1.00 given to me today, or a guaranteed $1.10 given to me a year from now?", and you prefer the $1.00 today, then your discount rate must be greater than 10%, even if you expect the markets to return 7% over this time. Setting your discount rate is kind of a personal decision, and is really a function of how risk averse you are and your spending and investing goals.
Be greedy and fearful. All the time.

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Re: Formula for when to buy in bulk

Post by B4Xt3r » Tue Oct 09, 2018 7:19 am

PrettyCoolWorkshop wrote:
Tue Oct 09, 2018 7:07 am
B4Xt3r wrote:
Mon Oct 08, 2018 6:36 pm
PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 12:58 pm
...
...
...
This understanding is correct.

One caveat I might throw in is that your discount rate might not exactly match the rate of return you expect of your investments. For example, if you ask yourself, "Would I rather have a guaranteed $1.00 given to me today, or a guaranteed $1.10 given to me a year from now?", and you prefer the $1.00 today, then your discount rate must be greater than 10%, even if you expect the markets to return 7% over this time. Setting your discount rate is kind of a personal decision, and is really a function of how risk averse you are and your spending and investing goals.
^Thanks very much for teaching me a new topic.

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Re: Formula for when to buy in bulk

Post by mouses » Tue Oct 09, 2018 8:37 pm

dm200 wrote:
Mon Oct 08, 2018 1:06 pm
On a small scale, I calculated that buying a large bottle of Acetaminophen Costco saved money vs a smaller bottle anywhere else - even if I threw out most of the pills when not usable.
I don't think you're supposed to throw pills out, rather take them to drop off places. Our local police station has one. I don't know if pharmacies do. The problem is some hapless animal comes by and gets poisoned, especially if the pills wind up in the water supply, the latter situation being bad for all species.

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Re: Formula for when to buy in bulk

Post by NextMil » Tue Oct 09, 2018 8:52 pm

I beg to differ. The cost of running out of TP is astronomical. Always buy it in bulk, otherwise you risk having major losses.

123
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Re: Formula for when to buy in bulk

Post by 123 » Tue Oct 09, 2018 10:17 pm

In my personal matrix of when to buy in bulk I include a consideration that I don't want to waste my time with extra trips to pick up items that can be readily stockpiled (or foodstuffs that can be frozen). I try not to go to Costco or Target more than once a month due to inconvenient locations so I stock up on those trips. If something is readily available (at a reasonable price) at my local grocery I'll get it there, but I build a small inventory when things are on sale (since at a grocery store mostly everything is on sale usually every few weeks).

Some people go overboard on stockpiling. We got some elderly relatives that seem to specialize in acquiring bleach and toilet paper, almost a whole wall's worth inside their garage.
The closest helping hand is at the end of your own arm.

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willthrill81
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Re: Formula for when to buy in bulk

Post by willthrill81 » Tue Oct 09, 2018 11:19 pm

There's another big issue with this kind of thinking, one that millions who believe that buying in bulk will save them money are overlooking: increased volume of goods leads to increased consumption of those goods. This is a well documented phenomenon.

At some point, consumer reach a satiation point. After all, you can only eat so much pasta and use so much toilet paper. But in some product categories, it may take a large volume of goods to reach this satiation point.

So saving something as small as 5-10% on goods bought in bulk may be counter-productive if the larger volume of goods results in an even greater increase in consumption of those goods.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Formula for when to buy in bulk

Post by RetiredCSProf » Tue Oct 09, 2018 11:47 pm

I had a good friend who bought food in bulk. His nickname was the "coupon king." He recently passed away (early 70's) after a 3-year battle with esophageal cancer and disastrous effects of radiation. His obsession with frugality was an excuse for unhealthy eating habits -- he bought extra meat when it went on sale on the last day of its expiration. He overate to avoid waste.

For non-food consumables, it's more of a question of storage space, how quickly you use the product, and continuity -- will you still need that product in a year and will you still prefer that brand.

david
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Re: Formula for when to buy in bulk

Post by david » Wed Oct 10, 2018 11:53 pm

My parents would buy in bulk (with sales + couponing) and waste rooms worth of space storing things for the future.

For items I use regularly, I try and buy enough until the next sale (which are typically periodic, you just have to figure out an approximate period), assuming the items are durable enough and the space required isn't a burden. For small durable items we use, I may pick up 6 months worth for certain items. But no more.

The bigger/bulkier it is the more it costs me to store in terms of my use of space/personal enjoyment/satisfaction of staying organized.

If your going to buy a non-durable item in bulk, it's good to have a plan before you buy (e.g. making jam, three recipes with it this week, etc.).

Though, the larger the savings the rules may be bent. But there is certainly costs to storing stuff for the future that are not just financial.

inbox788
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Re: Formula for when to buy in bulk

Post by inbox788 » Thu Oct 11, 2018 12:26 am

It's not a simple calculation, especially if there are costs involved (time, storage, fronting cash, etc.) and particularly if you can't predict future pricing. Just look at what airlines try to do about hedging fuel prices. They've tried to "buy in bulk" when prices are "low" (by locking in prices and supplies in the future), but it doesn't seem to have helped them, and they've devoted a lot of resources to the problem.

https://www.bloomberg.com/news/articles ... uel-prices

What do you do when there is a sale and you've bought all you need for a while, and then there is a better bigger sale?

FWIW, with Amazon delivery of many items, I've curtailed my bulk buying. Why waste the space on dozens of items that are essentially spares, when I can order what I need from amazon when I need it (JIT - just in time) and maybe pay a little more, but not having to put out a lot of cash for everything in total, and not waste lots of space on it?

missingdonut
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Re: Formula for when to buy in bulk

Post by missingdonut » Thu Oct 11, 2018 9:14 am

I have a cut-price supermarket chain in my area where I do most of my shopping (I avoid the meats and fruits, but for dry goods it's fine). The toilet paper brand and style I purchase comes in varying configurations, usually three or four at any given time, and the configurations and prices seem to change each time I buy it. From time to time, the second largest package (at around a $12 price point) is cheaper per square foot than their largest ($30 or so) package, so it's important to not just assume that the largest package is always the best deal.

Nate79
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Re: Formula for when to buy in bulk

Post by Nate79 » Thu Oct 11, 2018 1:00 pm

From a practical standpoint, especially for buying in bulk at Costco we try to buy enough product that we will have enough to last us until it goes on sale again. We know somewhat our consumption rate and most items do not spoil within this time period and we kind of know how often these items go on sale.

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Re: Formula for when to buy in bulk

Post by stoptothink » Thu Oct 11, 2018 1:19 pm

willthrill81 wrote:
Tue Oct 09, 2018 11:19 pm
There's another big issue with this kind of thinking, one that millions who believe that buying in bulk will save them money are overlooking: increased volume of goods leads to increased consumption of those goods. This is a well documented phenomenon.

At some point, consumer reach a satiation point. After all, you can only eat so much pasta and use so much toilet paper. But in some product categories, it may take a large volume of goods to reach this satiation point.

So saving something as small as 5-10% on goods bought in bulk may be counter-productive if the larger volume of goods results in an even greater increase in consumption of those goods.
+1. We buy things in bulk that we know we are going to use regardless (ie. 2yrs of toilet paper when it goes on mega-sale), but for foodstuffs we almost never do. Rarely are you going to find a deal so good that, factoring in everything (including using more, just because you have it), actually saves money. This might as well be called the "Costco phenomenon". If there was a legitimate controlled study of shopping at Costco, I have very strong beliefs that the data would show that most regular Costco patrons spend more as a result of shopping there.

B4Xt3r
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Re: Formula for when to buy in bulk

Post by B4Xt3r » Sat Oct 13, 2018 2:02 pm

BTW, I made a little utility spreadsheet. If anyone wants it, PM me for access.

B4Xt3r
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Re: Formula for when to buy in bulk

Post by B4Xt3r » Sun Oct 14, 2018 7:15 am

PrettyCoolWorkshop wrote:
Mon Oct 08, 2018 12:58 pm
...
The PV() function assumes your first payment occurs *after* 1 period has elapsed. So for an example case let's model 2 years of consumption. The length of time for our example does not effect the results.
...
BTW, PV() function in excel has an optional input that allows you to select wether the first payment occurs before or after 1 period.

ralph124cf
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Re: Formula for when to buy in bulk

Post by ralph124cf » Sun Oct 14, 2018 9:01 am

Globalviewer58 wrote:
Mon Oct 08, 2018 1:01 pm
Economic Order Quantity is a calculated value. see the link for details. https://www.dummies.com/business/accoun ... y-formula/
This is an important concept, but this particular formula does not allow for quantity discounts, which is the point of this thread.

Many non-accountants do not realize how many numbers in accounting formulas are estimates or judgement calls, either by management or the accountant himself. In this particular formula, only the cost of money can be known with anything approaching precision. The ordering cost can be reasonably estimated, but the storage costs are really a guess. The formula also requires a constant, rather than lumpy usage rate.

Ralph

moehoward
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Re: Formula for when to buy in bulk

Post by moehoward » Sun Oct 14, 2018 9:53 am

NextMil wrote:
Tue Oct 09, 2018 8:52 pm
I beg to differ. The cost of running out of TP is astronomical. Always buy it in bulk, otherwise you risk having major losses.
I think you got it.

(sitting on can) + (running out of TP) + Delta (x) =astronomical

Delta x = pantry empty+extra bathrooms empty

cashmoney
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Re: Formula for when to buy in bulk

Post by cashmoney » Sun Oct 14, 2018 12:48 pm

B4Xt3r wrote:
Mon Oct 08, 2018 12:35 pm
Hi All,

I have had something annoy me for a while now, and I'm curious if someone knows the answer. Let's assume that I have buy a certain product and that it is offered at various prices per unit depending on how much of it I buy. The choice is then, should I buy more of the product less often or less of the product more often (well duh).

So what I don't know is the following, and its been annoying me. If my goal is to minimize my total cost to consume such a product, how much of it should I buy when it goes on sale? There should be some calculable number... If there is no bulk discount, then I should not buy in bulk to maximize the the amount of investments that I can make. If there is a huge bulk discount, then I should buy in bulk even though it costs me some investment gains. Since those two expremes show different conclusions, I would expect that depending on the specific discount, I should be able to calculate how much extra I should buy.

Anybody happen to know the formula? If not, I'll do some more thinking.

-B4xt3r


This is what can happen if you over buy at the wholesale club ....... https://www.youtube.com/watch?v=OyNh8BNEXrs

denovo
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Re: Formula for when to buy in bulk

Post by denovo » Sun Oct 14, 2018 1:40 pm

willthrill81 wrote:
Tue Oct 09, 2018 11:19 pm
There's another big issue with this kind of thinking, one that millions who believe that buying in bulk will save them money are overlooking: increased volume of goods leads to increased consumption of those goods. This is a well documented phenomenon.

At some point, consumer reach a satiation point. After all, you can only eat so much pasta and use so much toilet paper. But in some product categories, it may take a large volume of goods to reach this satiation point.

So saving something as small as 5-10% on goods bought in bulk may be counter-productive if the larger volume of goods results in an even greater increase in consumption of those goods.
I don't think I use toilet paper, or detergent more because I buy in bulk.
"Don't trust everything you read on the Internet"- Abraham Lincoln

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willthrill81
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Re: Formula for when to buy in bulk

Post by willthrill81 » Sun Oct 14, 2018 2:04 pm

denovo wrote:
Sun Oct 14, 2018 1:40 pm
willthrill81 wrote:
Tue Oct 09, 2018 11:19 pm
There's another big issue with this kind of thinking, one that millions who believe that buying in bulk will save them money are overlooking: increased volume of goods leads to increased consumption of those goods. This is a well documented phenomenon.

At some point, consumer reach a satiation point. After all, you can only eat so much pasta and use so much toilet paper. But in some product categories, it may take a large volume of goods to reach this satiation point.

So saving something as small as 5-10% on goods bought in bulk may be counter-productive if the larger volume of goods results in an even greater increase in consumption of those goods.
I don't think I use toilet paper, or detergent more because I buy in bulk.
Perhaps not. As I said, consumers reach the satiation point more quickly in some product categories than others. But even with something like toothpaste, greater supply has been shown to generally lead to greater consumption.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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dm200
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Re: Formula for when to buy in bulk

Post by dm200 » Sun Oct 14, 2018 3:11 pm

denovo wrote:
Sun Oct 14, 2018 1:40 pm
willthrill81 wrote:
Tue Oct 09, 2018 11:19 pm
There's another big issue with this kind of thinking, one that millions who believe that buying in bulk will save them money are overlooking: increased volume of goods leads to increased consumption of those goods. This is a well documented phenomenon.

At some point, consumer reach a satiation point. After all, you can only eat so much pasta and use so much toilet paper. But in some product categories, it may take a large volume of goods to reach this satiation point.

So saving something as small as 5-10% on goods bought in bulk may be counter-productive if the larger volume of goods results in an even greater increase in consumption of those goods.

I don't think I use toilet paper, or detergent more because I buy in bulk.
Neither do I.

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