Learning Outcomes

After this section, the student will be able to:

Differentiate between cost-driven and value-driven businesses
Explain the different characteristics of Cost Structures in businesses

dictionary color-1.png Words to Know for Cost Quizlet

Cost Structure - A business design that ensures the business will be profitable with each sale after expenses.

Expenses - Things you buy to keep the business running

Labor - The amount of money being paid in return for someone's tie, usually in the form of full-time or part-time employees

Variable expense - Expenses that change based on the amount of product or service a business sells.

Fixed expense - Expenses that remain the same despite the volume of goods or services produced.

Commission - Amount paid based on the volume of products or services that a salesperson sells.

Cost of Goods Sold - Variable expense that is associated with each unit of sale, including the cost of materials and labor used to make the product.

Cost of services sold - Variable expense that is associated with each unit of sale including the cost of materials and labor used to provide the service.

Salary - A fixed amount of money that an employee is paid on a regular basis such as weekly, biweekly, bi-monthly, or monthly for jobs where the hours and schedule vary.

Unit of sale - What a customer actually buys from you. It's the amount of product (or service that you use to figure out your operations and profit.

Economy of Scale - Cost reduction is made possible by spreading costs over a larger volume. (Starbucks)

Economy of Scope - Cost advantage that a business enjoys due to a larger scope of operations. For example, can use the same marketing activities or distribution channels. (Proctor and Gamble)

Economies-of-Scale-vs-Economies-of-Scope-info-new

notes color-1.png EP-Cost_Structure.pptx

Start-Up Costs - Explanation

'Activity

Read the article. Take a look at the business you are starting. Explain if you are going to be a value-driven start-up or a cost-driven start-up and how that fits in with your value proposition. Are your costs going to be fixed or dynamic? Research five costs (Which costs will be variable or fixed?) you will be incurring when STARTING the business. List the costs and the dollar amounts in your Google doc - Being Entrepreneurial. For example, if you are starting an app - how much does it cost to develop your APP? You can Google an average cost... Think about your canvas so far - What channels are you using? What are your employer's needs, etc? How much do certain types of employees have to be paid? How many will you need? The article should help you with some of the ideas...