How I Turned $370 into $21,000

Economies of Scale

Economies of Scale is a term in micro-economics that is used to describe the decreasing cost to produce something as the scale of the operation increases.  Home brewing, for example, requires a basic set of tools and ingredients and time to produce a single batch of beer, which equates to approximately 2.2 cases.  Therefore, producing one batch is relatively expensive.  But, if the manufacturing process was ramped up to hundreds of thousands of gallons of beer, the cost per gallon, or the cost per batch goes down as the quantity produced goes up.

I thought about this the other day when I purchase 4 light bulbs at the grocery store for $1.00.  I know, you get what you pay for, but it reminded me of how efficient the manufacturer must be in order to keep the costs low enough to make a profit on each light bulb at that price.

The Rich Get Richer

Another example of economies of scale is the common phrase “you have to have money to make money.” The more you invest, the more you have working for you, and therefore, the more you’ll return on your investment.  The factor then becomes a question of risk tolerance.  If you put 5 coins in the slot machine, you will earn more if you win, but you’ll also lose more, and slot machines are very high risk, etc.

Cut Costs Using Economies of Scale

Any wholesale goods provider knows that the more they can purchase, the less it will cost them per unit.  The problem with many goods is that they have a shelf life, and they need to be moved, so they can’t just sit around doing nothing.  But what happens when it comes to services?  What happens when you purchase services in bulk, in advance, utilizing a bulk discount?

How I Saved over $600.00

Yesterday I analyzed one single category on my budget, website maintenance. For those of you who aren’t aware, owning a domain name is very inexpensive.  Utilizing that domain name is also very inexpensive, but it is a required cost.  How much should it cost though?

Stupid Tax

For the past few years, I have been tricked into thinking that I’m not spending much on my web hosting needs because of the ridiculously low costs of each website that I have online:

• centerpoint.cc = $2.95/month.
• chateaudeviesix.com = $2.77/month.
• jongriffith.com = $16.55/month.
• realscottsdaleliving.com = $7.23/month.
• showseason.com = $2.14/month.

Total expense every month = $31.64/month, or $379.68 per year.  Whoops.  That’s too much money.  I know that I can do better, but here’s the catch.  Had I not looked into it, I wouldn’t know that it was happening.

A New Direction

It took me about 2 hours to do some research on the topic of hosting websites, and I ended up chatting online with a sales representative from HostGator.com.  The service was excellent.  Through the course of the conversation, it became clear to me that I was spending way too much for my current hosting plan, not to mention the frustrations that go along with the particular hosting provider I am currently with.

With HostGator.com, I will be spending a total of $12.95/month for ALL of my websites.  That’s a monthly savings of $18.69, which equates to an annual savings of $224.28.  That’s a 59.1% reduction in cost.  Not only that, but because I’m a first time customer, I’m getting an additional 20% off the bill, so the total monthly cost is $10.33.  That increases my savings to 67.3%.  That means that over the next 3 years, I’ll be saving $767.00 if I make the change.  What’s the catch?

The Catch

I must pay for 3 years in advance.  My standard monthly budget for website hosting has been $40.00.  My one time payment in the upper $300.00 mark will take me WAY over budget, but in order to take advantage of the bulk discount that is being offered, I have to be willing to give them my money now.  It’s a brilliant marketing plan for HostGator.com, because they’ll bank the money now, and it helps them scale up quickly to reduce their costs, making my discounted monthly cost even more profitable.  It’s a great deal for me because I can invest $18.69/month (my savings) more than I was before.

$18.69 saved for 30 years is $6,700.00 but invested at 8% over the same time period in the right type of account could yield an additional $21,300 in free money.

So, to change website hosting providers or not to change?  I think this is a $21,000 decision that’s going to cost me only $370.00.

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