On today’s show we are talking about how a more expensive product can often be the least expensive solution. There’s so many examples when people try to save money they actually don’t succeed in the end. This is one of those counterintuitive situation.
On today’s show I’m going to challenge some loosely help beliefs. When I challenge loosely held assumptions, you’re probably going to say, “Wow I didn’t know that”. Most people feel energized and enlightened by challenging a loosely held belief. But if I challenge a closely held belief, the reaction is likely to be the opposite. Most will flatly reject a challenge to a closely held belief. It’s too threatening to have some core ideas turned upside down.
Today’s episode starts with a story about the fireplace in my parent’s home.
In my parents house when I was growing up, we had a wood burning fireplace I love the smell of the burning spoke. I loved the radiant heat sitting only a few feet from the fireplace and I love opening the steel curtain and pokey at the fire with the steel poker. From 1985 on words, it was almost impossible to find a newly built home that had a wood burning fireplace. They were all natural gas fireplace. It seems strange to me that a more expensive product, that is the gas fireplace would win out over a wood fireplace which in many ways is more desirable.
You would think that any home builder who is building a new home would be looking to save money. If they are going to provide a fireplace as a feature, the least expensive solution that meets that requirement is what I would expect most volume home builders to supply. Why would they use a more expensive gas fireplace. It needs a gas supply, a controller, decorative fake ceramic logs, and of course a fire box. A wood fireplace is just a metal box with a brick liner. It’s gotta be less expensive. All of that is true. But here’s the problem. When you have a wood burning fireplace, you need to build an entire chimney. Whereas the a natural gas fireplace can be direct vented to the exterior. There is no chimney required. When you take into account the additional cost of the chimney, it turns out that the gas fireplace start to look less expensive overall, even though the fireplace insert is much more expensive.
Here’s another one. The conventional heat of an apartment is done with a furnace. The cooling is done with a centralized air conditioner.
There is a lot of framing and ducting required to distribute the heat and cool air from the furnace heat exchanger throughout an apartment.
In recent years, we have started to build using the European style mini-split systems. These are both a heat pump and an air-conditioner in one. The downside to these units traditionally has been that they are not traditional. Some don’t like the look of the panel on the wall. These systems are more expensive than the traditional furnace and air conditioner. But when you take into account the fact that you eliminate all the extra framing and duct work, these systems can in fact be less expensive. Not only that, these systems give you individual temperature control in each room. You don’t need to spend money heating or cooling rooms that you’re not using. So while they’re more expensive, in reality they’re much cheaper.
What do all of these examples have in common? The local optimization of cost gives way to a bigger picture optimization. If you elect a more expensive solution locally, but can eliminate another cost element entirely, the result can be a significant savings. But it requires a change in context. Finding the cheapest material is based linear small thinking. Finding the cheapest solution requires bigger thinking.
As you’re thinking about that, where could you realize huge saving by spending a little more?