I recently received a very clever phone pitch. A telesales person called to congratulate me for being such a good magazine customer. She offered me five magazines, free of charge, for 60 months. I thought this was outrageously good. She explained that the magazines wanted to increase their circulation for their advertisers. She further explained that since I had been subscribing to a number of magazines, I deserved to get this offer. I was going to receive several different magazines to review, and then I could receive them for 60 months.
I thought about it for a moment —and did the math… sixty months is five years. That’s a long time to be receiving free magazines. My first alert.
Then she told me, “All you have to do is… please help us out with a service charge of only $2.99 per week.” At first, I thought $2.99 a week isn’t too bad. Then I thought, “Wait a minute!” Multiply $3 a week by 52 weeks. That’s $156 a year; $156 per year divided by five magazines equals $31.20 each. Yikes! That’s a lot for just a “service charge.”
This special offer was a total rip-off, especially when you consider what it costs to subscribe to most magazines. Most magazines offer a year’s subscription for anywhere from $10 to $20. So just by doing the math and translating weekly, monthly, and annual amounts puts the whole thing into perspective. Five magazines should weigh in annually at about $70, tops!
Look at the line items
My company got a quote on our new packaging that included a reference book, several diskettes, labels, a box, assembly, and so on. In large quantities, the overall price of $300,000 seemed in line. But when I looked at individual purchase orders for each component of our order and thought about how much each book should cost at a quantity of 32,000 units, the price per book seemed too high.
If I just subtracted 15 percent and took 35 cents off a $2.35 book, the cost came down to $2.00 each—which is what I asked our materials manager to negotiate. After going through most of our order, I asked for better pricing on many items. Overall, we saved more than $35,000 on that one purchase. That’s $35,000. Just adding up the numbers and considering the financial impact of each of the components of every deal can make a huge difference, and the time it took was less than 15 minutes.
Get into the habit of doing the math
When you get a bill from a restaurant, especially if it’s done by hand and not by computer, recalculate it. I’ll bet that two times out of ten, it’s wrong. There may be extra charges for things you didn’t order or didn’t get. The totals could be wrong, sometimes significantly wrong. (By the way, some servers add the gratuity but still don’t total the bill in the likely event that you’ll add an additional tip as a knee-jerk action in the rush to get out of there.)
Once I was scanning my hotel bill, line item by line item. I happened to notice that two movies were added to the bill. I said, “Wait a minute! There is a $7 charge on that bill that isn’t mine. I only watched one movie.” Without hesitation, I pointed it out to the clerk who immediately removed the charge. The minute that took would be worth about $420 an hour.
Cheapskate or not, practice and develop the habit
Although it may seem that you are tight, the habit of checking needs to be developed. If you’re willing to accept a $7 error on a $700 bill, I’ll bet you’d give up $5,000 on a $50,000 print order. It’s significant and it all adds up.
You’ve got to develop this discipline across the board to catch those things. You need to get into the habit of checking over each bill or invoice that comes to you. Or have your accounting department do it, but whatever you do, do it. Over the years, you could easily overspend $30,000 to $50,000 on mathematical errors alone. It’s frightening to consider how much money it’s costing you without you even realizing it.
Now, look at how you buy....
EDITORS NOTE: Excerpted from the book on mindful, responsive entrepreneurship, Business Black Belt, by Burke Franklin.