Should I Take the Yearly or the Monthly Plan?

Have you ever heard the saying, “You can’t save without spending money”?

It’s true. Rarely is there ever an opportunity to save money without an equal necessity to spend more than you expect. Whether it’s at the supermarket (“buy two bottles of juice and save 50%”); at the gym (“Sign up for 12 months and get 4 months free”); or in your business (“Take the 1-payment-option and save $200”).

As a Finance professional, I often see Entrepreneurs let their greed get the better of them by making buying decisions without thinking ahead. However, without taking the time to consider your options carefully, taking a discount might lose money when you think you’re saving.

Here are just a few reasons why you might want to think twice before taking a “discount” option:

 

1. A CHANGE OF HEART

Entrepreneurs are constantly changing their minds about their purchases. We tend to be indecisive and have short attention spans. What excites us and seems a great idea today might bore us tomorrow.

Sometimes, we don’t change our mind at all, but there’s something really wrong with the product or service and we don’t find out until it’s too late.

For example, suppose you want to buy Tom’s Latest Money Making Secrets. It costs $2,000 one-time—or $550 over 4-monthly installments. A little simple math tells us that the one-time option saves $200.

Should you take it?

If it’s a service you’ve never before tried or a product you’ve never before bought, the answer is “NO! Don’t take the discount!”

After you pay, you might find out that Tom’s customer support is horrible and you’re not able to get answer to your questions. Maybe the product has a major flaw that makes it impossible for you to use. Maybe you simply lose interest.

In this case, there is no $200 saving; there is a $2,000 loss on a product you can’t use.

The worst mistake is not checking the cancellation/refund policy carefully ahead of time. Discounted prices are almost always disclaimed with fine-print that says “no refunds”.

Always check the cancellation policy before you grab a “big discount”.

 

2. THE OPPORTUNITY COST

Another saying you might have heard is, “A bird in the hand is worth two in the bush”.

This is an important business principle. Money that you have in your hands right now has more value to you than money you “theoretically” save (or make) down the line.

Opportunity Cost is a measurement of how much you lose in other buying opportunities when your cash-money is tied up.

Consider this scenario.

Suppose you’re about to buy an important membership that costs $4,000/year or $400/month. Simple math says you save $800 when you take the yearly option. Should you take it?

Businesses tell you the yearly saving so you’ll compare oranges to apples. You compare how much you save over a year to the value of the saving to you right now. To undo their mischief, divide the yearly saving over 12 months and find out how much you save today. This is what counts.

In the example, if you compare what you save TODAY…you could save $66 or save $3,600.

Which do you choose?

Do you have more use for $3,600 or $66 today?

Perhaps you’d like to pay off part of your mortgage some other loan (and lower interest charges to your lender). Perhaps you pay another expense. Perhaps you purchase more equipment. Or, perhaps you try an alternative membership and compare the two.

Remember, once the $4,000 leaves your bank account, it’s gone.

Just because there’s a discount you don’t have to always take it—discounts cost opportunity. You have a choice where you spend your money. Choose wisely.

 

3. GOING OUT OF BUSINESS

A gym owner once told me that when a company entices you with a really attractive offer for lump sum upfront payment, it may be because that company has cash flow problems.

In other words, the business needs cash.

Many of the businesses that perform launch after launch and give deal after deal are struggling to stay afloat. If the company you are dealing with is indeed in financial trouble, their expenses outweigh their revenue on a regular basis.

The company is likely to declare bankruptcy, shut down, and disappear with any lump sum you give them.

In general, you can minimise your risk by taking installment options.

Don’t be tempted by big or frequent discounts. Always check the credibility of the company that you are dealing with. Does the company frequently launch products and services to you? Are they very aggressive in their promotions?

Is the company certified by an authority known in the industry? Has the company been in existence for a reasonable period of time? Do your due diligence.

 

 

Minimise Your Risk

There are many more reasons why a discount deal may be more costly than the alternative—for you.

In general, when in doubt choose to minimise your risk by taking the safer option; even if it appears to cost slightly more money. Remember that businesses specialise in coming up with tactics to appeal to your greed and tempt you to spend more money than you’re willing.

The discount is nothing but a temptation to make you spend :)

 

 

Author: Lee-Siah Chong

Lee-Siah has over 20 years of experience in international Finance working with top Fortune 500 companies. She specialises in Finance, Tax, Risk and Change & Transformation Management.

17 thoughts on “Should I Take the Yearly or the Monthly Plan?”

  1. Hey Lee Siah,

    Great post and very informative! I liked how you said that many businesses “perform launch after launch and give deal after deal are struggling to stay afloat”. Ken and I were just talking about that the other day how you can see a lot of people in the industry with launch after launch and all of them seem the same. Very boring and it seems the writing is on the wall for them.

    Melisa

  2. Lee-Siah,

    Loved the information you provided in this article!

    “Do you have more use for $3,600 or $66 today?” That excerpt from your article should be very revealing for many. The marketers all know the best answer is the have the extra money in their account TODAY, and that's why they are pushing so hard to have you give it to them TODAY. You should always try to figure out why they are offering such a so-called “sweet deal” before you hand over your hard earned cash.

    It's all about cash flow. I always try to look at it like this… what can I turn that extra $3000 into over the next year. If I spend it now, then just as you wrote, it is gone. But if I hang onto that cash, then I can invest it in another area and let that $3K generate some cash for me. Chances are I can make it really outperform the $66/month too!

    Thanks for sharing,

    Ken

  3. Hey Lee Siah,

    Great post and very informative! I liked how you said that many businesses "perform launch after launch and give deal after deal are struggling to stay afloat". Ken and I were just talking about that the other day how you can see a lot of people in the industry with launch after launch and all of them seem the same. Very boring and it seems the writing is on the wall for them.

    Melisa

  4. Lee-Siah,

    Loved the information you provided in this article!

    "Do you have more use for $3,600 or $66 today?" That excerpt from your article should be very revealing for many. The marketers all know the best answer is the have the extra money in their account TODAY, and that's why they are pushing so hard to have you give it to them TODAY. You should always try to figure out why they are offering such a so-called "sweet deal" before you hand over your hard earned cash.

    It's all about cash flow. I always try to look at it like this… what can I turn that extra $3000 into over the next year. If I spend it now, then just as you wrote, it is gone. But if I hang onto that cash, then I can invest it in another area and let that $3K generate some cash for me. Chances are I can make it really outperform the $66/month too!

    Thanks for sharing,

    Ken

  5. Lee Siah, Hi

    Thank you for this educational post. We all like to save but often we lose in the process. Just recently I subscribed to a service and I chose the monthly option. As soon as I started using it I realized that my internet connection is not suitable for it. The files are huge and my monthly internet subscription which usually lasts me and my family for the whole month was used up in 5 days after using part of their service. I did not even get the chance to check out all their services. I never anticipated this problem but because I signed up for the monthly option I am able to cancel my subscription and only lost the one month subscription fees.

    1. Great case in point Basma. So you saved when you might have thought that you could be losing out.

  6. Lee Siah, Hi

    Thank you for this educational post. We all like to save but often we lose in the process. Just recently I subscribed to a service and I chose the monthly option. As soon as I started using it I realized that my internet connection is not suitable for it. The files are huge and my monthly internet subscription which usually lasts me and my family for the whole month was used up in 5 days after using part of their service. I did not even get the chance to check out all their services. I never anticipated this problem but because I signed up for the monthly option I am able to cancel my subscription and only lost the one month subscription fees.

    1. Great case in point Basma. So you saved when you might have thought that you could be losing out.

  7. Thank you for your comments. Yes, always good to check if the seller is providing true value, do I need it even if it is good value and how should I pay for it.

  8. Thank you for your comments. Yes, always good to check if the seller is providing true value, do I need it even if it is good value and how should I pay for it.

  9. Good article Lee Siah.

    Absolutely people should do more due diligence. Even one little deeper thought of 'Hey, this 20 dollar discount coupon at (restaurant) is NOT going to save me money' (unless you frequently eat there πŸ˜‰

    It is very true what you say about some entrepreneurs having a change of heart. I see this a lot and think it is simply a lack of direction within the person about what to look for and what to avoid. But this is the beauty of finding ones own experience and path and what works for them.

    But yes I generally feel that if you sense a negative pressure to buy something quickly or it will forever be gone, that is a red flag for me as I know if you really do think you're product or offer is of high quality in all ways, then that good deal must be there tomorrow.

    Then again, collectibility is something of value in itself as well. And well, in the end, one must learn to spot out the qualities themselves, rather than purely listening to the advertisers words.

    I couldn't agree more, do your due diligence for the truth.

    1. “collectability is something of value in itself”–truer words couldnt have been spoken!

      This is a good tactic when a thing is collectible for sure. From a business perspective you'd do your best to make people spend money with you. making your item collectible is a good tactic. but when the roles are reversed and you become the customer (particularly if you are also a business owner) you must be aware of these tricks and be immune to them.

      successful business people are successful because they take smart decisions with their money. so you're right to be aware of these tricks and raise your guard when someone puts you under pressure to take the discount now or miss out forever.

  10. Good article Lee Siah.

    Absolutely people should do more due diligence. Even one little deeper thought of 'Hey, this 20 dollar discount coupon at (restaurant) is NOT going to save me money' (unless you frequently eat there πŸ˜‰

    It is very true what you say about some entrepreneurs having a change of heart. I see this a lot and think it is simply a lack of direction within the person about what to look for and what to avoid. But this is the beauty of finding ones own experience and path and what works for them.

    But yes I generally feel that if you sense a negative pressure to buy something quickly or it will forever be gone, that is a red flag for me as I know if you really do think you're product or offer is of high quality in all ways, then that good deal must be there tomorrow.

    Then again, collectibility is something of value in itself as well. And well, in the end, one must learn to spot out the qualities themselves, rather than purely listening to the advertisers words.

    I couldn't agree more, do your due diligence for the truth.

    1. "collectability is something of value in itself"–truer words couldnt have been spoken!

      This is a good tactic when a thing is collectible for sure. From a business perspective you'd do your best to make people spend money with you. making your item collectible is a good tactic. but when the roles are reversed and you become the customer (particularly if you are also a business owner) you must be aware of these tricks and be immune to them.

      successful business people are successful because they take smart decisions with their money. so you're right to be aware of these tricks and raise your guard when someone puts you under pressure to take the discount now or miss out forever.

  11. Launch After Launch – i think we all know companies that always have a new launch.

    Lee Siah. Thank you for this simple piece of valuable information. Reviewing the true value of a product and its pricing structure is always the smart thing to do. The unfortunate thing is most people buy out of the fear of lost knowledge. This makes them rush into a deal that isn't going to benefit them (I should know I have been guilty of this before).

    Standing back and taking a more researched look and a potential purchase can make a huge difference.

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