Direct and indirect costs (fixed and variable). Common start-up costs. Business costs calculators. Perceived value. Pricing strategies.

1. Activities and Costs
Frieda Brioschi / Emma Tracanella
frieda.brioschi@gmail.com / emma.tracanella@gmail.com
IED, 27 Mar 2018
Lesson 5/2018

2. 5. Actiivities & Costs
Course program
1. Start-ups
2. Business Model & Canvas
3. Value Proposition Design
4. Customers & Market
5. Activities & Costs
2

3. 5. Actiivities & Costs
The Business Model Canvas
During last lesson we discussed what is a business model and how fulfill a
business model canvas, looking into each part:
• Value proposition
• Customer segments
• Channels
• Customer relationship
• Revenue streams
• Key resources
• Key partner
• Key activities
• Cost structure
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3
4
5
6
7
8 9

4. 5. Actiivities & Costs
All you need to know
about costs
4

5. 5. Actiivities & Costs
Costs
In production, research, retail, and accounting, a cost is
the value of money that has been used up to produce
something, and hence is not available for use anymore.
Two kind of costs:
• Direct costs
• Indirect costs
5

6. 5. Actiivities & Costs
Direct costs
Costs that can be identified specifically with a particular
project or activity, or that can be directly assigned to them
with a high degree of accuracy.
Direct costs generally includes:
• Salary and wages
• Material, supplies and equipment purchased directly
for the specific project
• Communication and travels costs
6

7. 5. Actiivities & Costs
Indirect costs
Costs that are not classified as direct
Indirect costs generally includes:
• Salary of administrative staff providing normal support
activities
• Office supplies, computers
• Local telephone calls
• Memberships
=> Overhead
7

8. 5. Actiivities & Costs8
http://www.ryansharkey.com/blog/direct-vs-indirect-costs-government-contracting

9. 5. Actiivities & Costs
Bykes
Direct costs:
• Metals
• Wages for assembly
Indirect costs:
• Abrasive, glue, pink
• Rent
• Insurance
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10. 5. Actiivities & Costs
Actual cost of doing
business
Before you can price a product or a service, you need
to know your cost to produce it.
A start-up usually should divide costs in one-time and
recurring.
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11. 5. Actiivities & Costs
Common start-up costs
• market research
• preliminary accounting and legal advice
• tenancy/lease bond, stamp duty and lease agreement
advice
• telephone/internet installation
• statutory requirements such as licences and insurance
• power connection and bond
• signage and initial marketing
• equipment, fixture and fittings purchases
• staffing and wages
• initial raw materials and/or stock purchases.
11 https://www.business.qld.gov.au/business/starting/starting-a-business/calculating-your-costs-when-starting-a-business

12. 5. Actiivities & Costs12

13. 5. Actiivities & Costs
How much does it cost to
start a business?
Be sure to identify all the possible costs:
• Start-up expenses, e.g. legal, regulatory,
insurance, staff, rent advances, office supplies
and stationery, consultants, etc.
• Start-up assets, e.g. cash in the bank, starting
stocks, office furniture, etc.
• Recurring start-up costs, e.g. rent, salaries,
etc.
13
http://businessingambia.com/startup-costs-start-business/

14. 5. Actiivities & Costs
Photographer
• How much charge a photo?
• Minimum fee?
• No costs?
A useful tool: the Cost of Business calculator. It list annual
expenses, but it depends on your inputs which can be hard to
estimate.
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15. 5. Actiivities & Costs
Cost of doing business
calculator/1
Expenses
• Office and/or studio (rent, mortgage payments, taxes,
insurances, home maintenance, …)
• Phone (cell and/or landline and faxes) – remember to
include also the cost of the phone itself
• Photo/Video/Audio Equipment and Accessories
• Equipment services and Repairs
15
https://nppa.org/calculator

16. 5. Actiivities & Costs
Cost of doing business
calculator/2
• Computer(s) (harware and software)
• Broadband internet
• Web hosting/Portal services
• Vehicle Expenses (Lease, Insurance, Maintenance)
• Office supplies and Furnitures
• Postage and Shipping
16
https://nppa.org/calculator

17. 5. Actiivities & Costs
Cost of doing business
calculator/3
• Professional Development
• Advertising and Promotion
• Subscription and Dues
• Equipment and Business Insurance
• Health Insurance/Deductibles/Copays
• Legal and Accounting Services
17 https://www.calcxml.com/calculators/bus02

18. 5. Actiivities & Costs
Cost of doing business
calculator/4
• Taxes and Licenses (Business and Self-Employment)
• Office Assistance (Payroll, Answering Service, Intern,
etc.)
• Utilities
• Travel and Entertainment
18 http://www.wsj.com/public/page/news-small-business-startupCalculator.html

19. 5. Actiivities & Costs
Cost of doing business
calculator/5
• Income factors
• Desired Annual Salary
• Non-assigment Income
• Number of Days You Can Bill Per Year
19 https://www.business.qld.gov.au/business/starting/starting-a-business/calculating-your-costs-when-starting-a-business

20. 5. Actiivities & Costs
Cost of doing business
calculator /6
https://nppa.org/calculator
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21. 5. Actiivities & Costs
Money doesn’t make
(always) the difference
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22. 5. Actiivities & Costs22

23. 5. Actiivities & Costs23

24. 5. Actiivities & Costs
List the costs you foresee if your
core business is making bicycle
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25. 5. Actiivities & Costs
…according to you/1 -
Money
25
• None
But 10 did not answer or didn’t know!
“Tesi Amazon”?

26. 5. Actiivities & Costs
…according to you/2 -
materials
26
Mould, meterials, designer, brand
Products, partners, pleaces, facility, machinery
fornitori, produzione, tecnici, materiali, comunicazione e
marketing
• Production • Distribution • Marketing
cost for production and materials, payments for
employees, ads

27. 5. Actiivities & Costs
…according to you/3
27
• Forniture (3)
Comunicazione (Brand identity, Network communication,
Unconventional?)
Creazione strumento di condivisione ed utilizzo
(Progettazione)
Produzione (spazio, materiali ed utensili),
pubblicizzazione, distribuzione
Production and adv
Prodotto effettivo (bici)

28. 5. Actiivities & Costs
…according to you/4 - ?
28
produzione
Produzione, distribuzione, marketing.
Produzione / Marketing / Distribuzione / Comunicazione
cost of production
Staff, Materials, Permits, instruments, rent
struttura di produzione, dipendenti, macchinari, costi di
gestione azienda, materiali, fisco?
Materiali, spazi e macchinari per produzione,
comunicazione, distribuzione

29. 5. Actiivities & Costs
Help! Net for Neet
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30. 5. Actiivities & Costs
NEET: Not (engaged) in
Education, Employment or
Training
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31. 5. Actiivities & Costs
Obiettivi
• Sviluppo di una piattaforma digitale di coaching e
formazione peer to peer alle digital skills rivolta ai
giovani dai 18 ai 29 anni
• Costruzione di una community di riferimento per
evitare il rischio di esclusione sociale
• Collegamento con il mondo del lavoro per favorire
formazione e attitudine all’occupabilità
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32. 5. Actiivities & Costs
Nome?
• BlàblàSkills
• OpenSkills
• ..
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33. 5. Actiivities & Costs
Perceived Value
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34. 5. Actiivities & Costs34

35. 5. Actiivities & Costs
Value
The extent to which a good or service is perceived by its
customer to meet his or her needs or wants, measured by
the customer’s willingness to pay for it.
It depends more on the customer’s perception of the
worth of the product than on its intrinsict value.
How do we create the perception of value when we talk to
our customers?
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36. 5. Actiivities & Costs36 https://beyondphilosophy.com/comparing-perceived-value-drivers-employees-customers/

37. 5. Actiivities & Costs
Price vs Value
37
http://www.acceleratenow.org/what-is-value-investing-part-2/

38. 5. Actiivities & Costs
Pricing strategies
38
https://julieaskewblog.wordpress.com/marketing-principles/pricing-strategies-elasticity/

39. 4. Market and Value5. Actiivities & Costs
Gillette Fusion
• Amazon price: 19.25$
• 8 cartridges
• Cost/cartridge: 2.41$
• You need the razor (11.49$)
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40. 4. Market and Value5. Actiivities & Costs
Gillette Custom Plus
Disposable
• Amazon’s price: 20.97$
• 30 razors
• Cost/razor: 0.70$
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41. 4. Market, Value and Business Model5. Actiivities & Costs
Gillette Fusion vs. Custom
Plus
• Prices
• 19.25$ vs. 20.97$
• 8 cartridge vs. 30 razors
• Cost in use
• 2.41$ vs. 0.70$
• Additional perceived value justify the additional cost in use
• Durability of blade
• Comfort
• Less irritation
41

42. 4. Market, Value and Business Model5. Actiivities & Costs
Gillette idea
By providing something at below the market price
(the razor), you can create a market for a secondary
product (the blade) upon which you make ongoing
profits.
The mark-up on the secondary products is
disproportionate relative to their cost so were highly
profitable for the manufacturer.
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43. 4. Market, Value and Business Model5. Actiivities & Costs43
https://chadbockius.com/2017/08/02/life-lessons-buying-stuff/

44. 4. Market, Value and Business Model5. Actiivities & Costs
3M Scotch® Tape
• Amazon’s price: $1.70
• Lenght: 650 inch
• Cost/inch: $0.003
• Cost to hang a poster: $0.01
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45. 4. Market, Value and Business Model5. Actiivities & Costs
3M Scotch® Command
Strips
• Amazon’s price: $2.70
• 12 strips
• Cost/strips: $0.08$
• Cost to hang a poster: $0.32
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46. 4. Market, Value and Business Model5. Actiivities & Costs
Tape vs. 3M Scotch® Strips
• Price
• $1.70 vs. $2.70
• Using Scotch Tape, the user can hang 75 posters vs. 3 for the
command strips
• Cost in use
• $0.01 vs. $0.32 to hang 1 poster
• Additional perceived value justify the additional cost in use
• Less damage to wall
• Simplicity to remove
• Durability
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47. 4. Market, Value and Business Model5. Actiivities & Costs
CocaCola
47

48. 5. Actiivities & Costs5. Actiivities & Costs
Nespresso
48
What else?

49. 4. Market, Value and Business Model5. Actiivities & Costs
Lacoste
• Founded in 1933 by the
tennis man Rene Lacoste
• At the end of 1990 the
company change its strategy:
marketing, retails outlets,
product range, ...
• Sale of t-shirts in limited
series
• Re-establishing Lacoste as “a
distinctive premium brand”
49

50. 4. Market, Value and Business Model5. Actiivities & Costs
Lacoste
• https://www.youtube.com/watch?v=IZC02EQqcXc
50