Business owners use cost of living comparisons for different reasons and with differing frequencies. The pricing and costs of cost of living comparisons really depend on the depth/breadth of information you need.

If you periodically use information/comparisons when hiring, you might settle for a free cost of living calculator to give you the information you need. Perhaps you employ staff who reside overseas and require fair compensation packages. As a consultant, you might frequently perform an international cost of living comparison or local/state/regional/national cost of living comparisons. When evaluating pricing and costs of cost of living comparisons, consider:

1. Using free cost of living calculators.

2. Finding desktop software that permits cost of living comparisons, international and national.

3. Ordering reports that compare cost of living information and indices.

Action Steps
The best contacts and resources to help you get it done

Find free cost of living calculators if you don't need much detail

Free cost of living calculators offer a great place to start your research, but their data is typically not as current (or detailed) as that of consultants or big-name cost of living software/service/report providers.

I recommend: Perform a general cost of living city comparison with the cost of living calculator at Sperling's Best Places. The company's sources of information include its own research, U.S. Census Bureau, National Center for Education Statistics, FBI, Bureau of Labor Statistics and more. Compare cost of living between two U.S. cities for free and get a slightly more detailed report from Bankrate.com. The calculator provides cost comparisons in categories like cost of homes, mortgage rates, rent, energy, optometrists, doctor visits, washer repair and even beauty salons.

Purchase a cost of living comparison solution you can access from your computer

Gaining access to software with national and international cost of living comparisons can run from just under $1,000 to more than $2,000 for an annual subscription.

I recommend: If you can afford it, the Economic Research Institute (ERI) ranks as king of the hill for providing quality information on cost of living, international and national. With ERI's different desktop software applications, you can purchase the Consultant Edition Relocation Assessor & COL Survey with an international cost of living calculator that includes labor cost analyses, costing proposed HR policy changes and international COL comparisons. The less expensive (by more than $1,000 a year) Professional Edition gives users cost-of-living differentials for more than 7,200 U.S. and Canadian cities. Learn more about the Worldwide Cost of Living survey from the Economist Intelligence Unit (EIU). EIU calculates an international cost of living index using survey information to demonstrate the difference in the COL between any two cities selected. Survey data collected range from food and toiletries to domestic help, transportation and utility bills for 140 cities in 93 countries.

Order reports or services with cost of living index and comparison information

Get single-copy reports ranging from under $100 to more than $1,000 or quarterly reports that fall within the range of just under $150 to nearly $300 for annual subscriptions.

I recommend: Consider a single issue or subscription to the quarterly ACCRA Cost of Living Index from The Council for Community and Economic Research. You can receive the index in print (magazine style), PDF or Excel. Purchase cost of living reports from Mercer, a provider of HR and related financial services that include city-to-city index comparison, spendable income table, home country housing norms, expatriate accommodation costs and education costs. The cost of the report depends on the number of cities included.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Form complete cost of living comparisons by also reading consumer price index reports. The CPI measures changes in the cost of a typical basket of services or goods purchased in a U.S. metropolitan area over different periods of time. This information is the chief measure of inflation the U.S. government and private business uses to set wages, welfare benefits and entitlements.

Consumers who are planning to relocate aren't the only ones who can benefit from understanding cost of living comparisons. Small business owners can also benefit from understanding cost of living variations in different regions, states, or countries.

Understanding cost of living comparisons is important for your small business for the following reasons:

1. Optimize your business's bottom line by conducting online cost of living comparisons before extending employment offers to potential employees or offering relocation assistance.
2. Understanding the cost of living index and a cost of living city comparison can help you determine if it's economically sensible to open an additional business location in a different geographic region.
3. If you want to market a product in other geographic regions, you can determine pricing more effectively by comparing cost of living by cities. Understanding an international cost of living comparison and the international cost of living index helps if you're considering an international market for your products or services.
   

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The best contacts and resources to help you get it done

Use online cost of living calculators

When you want to compare cost of living in different states, online cost of living calculators can help streamline the process.

I recommend: Try the cost of living calculator at CNNMoney.com. It's geared toward job seekers, but the results will be just as helpful to small business owners. For a cost of living international comparison, try an international cost of living calculator like the one available at SalaryExpert.

Utilize online information about the cost of living index and international cost of living index

To compare cost of living, international and national comparisons are sometimes helpful.

I recommend: Compare the cost of living index for select U.S. cities at Infoplease. For an international cost of living comparison, use an international cost of living index in addition to an international cost of living calculator. EuroCost International provides clients with international cost of living indices. The Economic Research Institute's Relocation Assessor software program allows small business owners to conduct cost of living comparisons. If you don't plan on using the software frequently, you might find the yearly subscription cost prohibitive.

Understand currency comparisons

Currency comparisons are constantly changing, and they're part of cost of living comparisons. That's why it's helpful to use online currency comparison tools.

I recommend: Expedia has a useful currency comparison tool. Certain consumer goods are also indicative of currency value. Economists have used the cost of the Apple iPod to determine currency value, and it has been termed the iPod index.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Try several online cost of living calculators since the results might vary depending on the calculator used.
• •  Cost of living in certain areas is more closely connected to real estate value rather than the cost of items more relevant to businesses. Keep this in mind when performing either a domestic or international cost of living comparison.
• •  The iPod index is based on the same economic principle, purchasing-power parity, as the Big Mac index.

A domestic or international cost of living comparison is a valuable tool for employees and employers during the hiring process. Cost of living comparisons allow you to compare salaries and living expenses in two or more cities.

Using cost of living comparisons is generally quite simple. Normally, you just need to enter a salary amount and the cities that you are comparing. Still, there are a few pitfalls you will want to watch out for, including:

1. All cost of living calculators do not use the same data to make their comparisons;

2. Most cost of living comparisons include a legal disclaimer;

3. And making an international cost of living comparison requires an international cost of living calculator.

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Learn about the differences between cost of living comparisons

Not all cost of living comparisons are the same. Some include expenses such as health care and recreation. Others only include basic expenses such as housing and utilities. Some are seasonally adjusted; others are not. In order to accurately compare cost of living, you should know exactly what is included in the raw data.

I recommend: Check out InflationData.com for a detailed description of the differences between several cost of living calculators. The site also defines terms such as the cost of living index. PayScale has the answers to several frequently asked questions about cost of living comparisons.

Read the legal disclaimer for cost of living comparisons

Cost of living international and domestic comparisons often come with legal disclaimers. The disclaimers usually explain that the information in the cost of living calculator is provided 'as is' and the provider will not be held liable for any errors or monetary losses.

I recommend: For a good example of legal disclaimers for a cost of living comparison, take a look at the disclaimers provided on CityRating.com or Fast Forward.

Reference an international cost of living comparison

If you want to know the worldwide cost of living, you will need to find an international cost of living index that allows you to compare costs between countries. An international cost of living calculator takes into account additional factors such as currency exchange rates. Because a cost of living international comparison is difficult to come by, you may have to pay for the information.

I recommend: Economic Research Institute allows you calculate the cost of living differential between more than 3,000 cities in the world. Economist Intelligence Unit comes up with its data by comparing the costs of expenses as small as cinema tickets in different cities of the world.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If your company often uses cost of living comparisons to determine employee wages and to price merchandise, you should consider purchasing a subscription to a service that provides a domestic or international cost of living calculator.

More than ever, today's thriving businesses are depending on cost of living comparisons to come up with salary figures that will attract the highest performers. Luring the top talent that will drive your company's profits and growth depends on your ability to offer worthwhile compensation packages. By acquainting yourself with cost of living comparison key terms you'll have a better understanding of the standard analyses on which these comparisons are based.

Action Steps
The best contacts and resources to help you get it done

Relocation assessor

Cost of living comparisons depend upon relocation assessor calculations. For example, these calculations consider the cost of all the products and services an area resident depends on.

I recommend: At Economic Research Institute, you'll get insight into the most common costs of living on which a relocation assessor depends. Find out how cost of living is added to this mix and how a relocation assessor handles local wages as an economic indicator.

Consumer expenditures

Economists who perform cost of living comparisons refer to consumer expenditures as the infinite number of goods and services available to any individual.

I recommend: Go to Council for Community and Economic Research for a detailed explanation of the methodology by which consumer expenditures are calculated. Find out how economists assign prices to certain goods and services for the purposes of performing this analysis.

Consumer price index

Economists frequently base their cost of living comparisons upon a consumer price index, a measurement of the prices consumers pay for standard items; this is subject to frequent change.

I recommend: The Bureau of Labor Statistics contrasts the consumer price index with the cost of living index as effective economic indicators of consumer buying and consumption patterns.

Cost of living adjustment

Also known as COLA, the cost of living adjustment was enacted in 1973 as a system to reassess whether the social security benefits individuals are receiving remain sufficient to meet their needs.

I recommend: To understand how COLA remains vital to calculating social security benefits at any given time, read the Social Security Administration's discussion of how COLA is calculated and what is the most up-to-date cost of living adjustment rate.

Liveability

As a theory, liveability refers to the resources found in any given place that make that location desirable or not.

I recommend: Check out the suggested liveability scale at Economist Intelligence Unit. You'll also find out about the uses economists make of liveability analyses when they are comparing living costs.

Cost of living calculator

Economists use a cost of living calculator when they must adjust prices over two or more years.

I recommend: Go to American Institute for Economic Research to see the formula plugged into the cost of living calculator and the data used to keep the cost of living calculator current.