If only I had a dollar for every time someone tells me my product is too expensive.
As a company that designs and develops premium liquid analysis systems it is to be expected. However I am truly amazed at how little effort most people put into calculating the real cost of low priced products.
It is human nature to hunt down a bargain, to look for ways of reducing our costs by finding that sweet spot between cost and benefit.
However, to expect the same performance from a cheaper product is ill-considered. Often, there exists a mountain of tangible costs that result from poor performance or premature failure, and yet many of us continue to fixate on reducing our "costs" by finding a cheaper replacement. After decades of consumerism, I can personally attest to never saving a real dollar by buying the cheaper alternative. Worse still, there is often a frustration that accompanies low cost goods that cannot be quantified in monetary terms.
Just this week I received a call from a past customer of mine, Ian*. He quoted me a part number that wasn’t in our records and I had to go back almost 6 years to find it. When I inquired as to the length of time between ordering, he explained that he had moved out of the role and his successor had decided to go with a cheaper alternative - about half the price of our product. Now that he had returned to the role he was reviewing the changes that had taken place and there were a number of alarming trends. Delving a bit further, he explained to me that they were getting about 4 weeks service life from each sensor. Sensors were drifting by half a pH unit every 4 or 5 days, so instead of calibrating fortnightly like they did with our sensor, they were being cleaned and calibrated every 4 days. With 10 measurement loops, the company had found themselves short on manpower so a couple of years prior they had moved to utilising a 3rd party contractor for their sensor maintenance. They were typically paying $2000 per fortnight for calibration/maintenance services. In short, the last 12 months of pH measurement had cost the company approx. $50,000 in replacement sensors and $48,000 in labour costs, totalling almost $100,000.
Ian recalled that during his previous tenure it cost no-where near that, so we did the math. My last records indicated they had purchased 30 sensors during a financial year period, totalling $24,000. Ian recalled the sensors lasting between 16-24 weeks depending on the location. Calibrations were performed fortnightly, and utilising the current manpower costs, we estimated $650 per fortnight month (5 hours @ $130 per hour), or $16,900 per annum. Our sensors had now gone up in price to $895, so a realistic comparison was approx. $27,000 for sensors and $17,000 in labour, totalling $44,000 as an annual cost of measuring pH. This was a back of the envelope calculation but we could have added a number of other costs related to the maintenance of the low cost liquid analysis systems, such as the additional manpower to perform swap-outs which was approximately another 90 hours per year.
To switch back to using our product represented a saving of at least $54,000 per year for this site, less than half the current cost. It was a compelling number for change, however I knew it was just the tip of the ice berg. This process is very pH dependant and utilised a lot of expensive reagents. With drifts of up to half a pH unit every 4 or 5 days there is no doubt that the cost of poor process control would amount to hundreds of thousands in either excess reagent use or a reduction in yields. While I asked Ian if he could investigate this cost, he lamented that process [engineers] would be unlikely to share that information with him.
Anyway, I prepared an updated quotation and he promised to take it to management.
This morning I received an email: "Do you have anything cheaper?"
*Names have been changed.