The Dollar Rule vs. a Laptop Computer
Here's an example of using the Dollar Rule. You want to buy a new laptop computer. The computers might be priced at three price points: $699 (budget), $999 (mid-range), and $1999 (high-end). Assuming that you use the computer for 4 hours per day on average, the comparison would be something like this:| Item | Price | Days to break-even (@4hrs/day) |
|---|---|---|
| Budget laptop | $699 | 175 days (6 months) |
| Mid-range laptop | $1199 | 300 days (10 months) |
| High-end laptop | $1999 | 500 days (1 year 4 months) |
The high-end laptop is faster (CPU, RAM, hard drive, Wifi, etc) than the budget laptop, but it will take 2 and a half times as long to reach your DR break-even. So one might argue that you opt for the low or even the mid-range laptop, instead of splurging on the high-end one.
However, a case could also be made for the high-end laptop. How? Because if the computer is faster (in whatever aspect that matters, maybe faster WiFi speed, faster graphics, etc), you might start to use the computer even more, say 6 hours a day, instead of only 4. For example, you can run that 3D graphics software much faster now, so you'll tend to use the computer an hour or two longer each time and get more work done. In that case, the DR break-even time for the laptop purchase drops to 333 days (1 months).
Another rationale for buying the high-end model is if you are the type of person to use your computer forever until it dies. Therefore the longer break-even time is not an issue. You're going to use it for 5 or 6 years anyway, so you'll easily hit 500 days and beyond.
Personally, I like to buy the high-end model of the previous generation (like right after they announce a new line-up) and then use that system until it croaks or at least until it's so slow that it starts to become a signficant bottleneck. Using this tactic, I find that my computer purchases usually skip at least 2 or 3 processor generations.
Again, the Dollar Rule doesn't care or demand which way you go. Buy low-end and trade up sooner. Or buy high-end and use it a lot longer.
So given these viewpoints, it may seem like you could buy any thing at any price and rationalize it to meet the Dollar Rule. And that is largely true, for any one item. But your real constraint is going to be the number of hours in the day. If you get the high-end laptop and expect 6 hours per day use, that will be 6 hours that won't be available to be spent on other things like a new video game.
That's the opportunity cost component of Dollar Rule coming into play. You'll have to decide on the trade-offs between choices A, B or C. But at least now you have one more way to compare purchases, even Apples-to-Oranges comparisons (say laptop vs. video game vs. shoes).
» Next: We'll introduce a standard DR metric you can use to gauge the relative ROI (or break-even point) of a given purchase.
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Fri, 2008-06-13 02:39
I know it's a hypothetical situation, but $1299 for a 'high-end' notebook seems a little low - $1599 would be a more apt figure. Also, a notebook used daily would probably not last for 5-6 years. The hard drive or fan would give up the ghost long before that.
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»Fri, 2008-06-13 21:19
Anon, yeah you're right. $1299 is more of mid-range price. I've adjusted the numbers a bit to $699, $1199, and $1999. This would line up with a typical PC laptop, a MacBook and a MacBook Pro, at least as of mid-2008.
Perhaps with PC/Windows systems 5 years might seem like a stretch. For a corporate environment, this is probably especially true, with the creeping Windows/Office requirements (or apps in the Adobe Creative Suite) often requiring a refresh every 2-3 years. But then again, if you are using it as your main workstation 7-8 hours a day, you would reach break-even time even faster.
But I think in many cases, if you're not having to really push the CPU or graphics (video editing/encoding, rendering, recent games, etc.), you could easily get 5 years out of a system. IM, email, web surfing, and word processing would be things most any system could handle even as it ages. At that point, the system might get passed to another user with less system requirements or be repurposed for something else. As far as the Dollar Rule is concerned, it doesn't have to be the same person benefitting from the purchase. It could be someone in the same organization or family.
Our newest system is 3 years old, but most of ours are in the 6-7 year-old range, still providing daily use as print/file/email servers, etc.
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