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Value analysis

Direct and Indirect Costs, Cash and Accrual Basis Accounting, Perceived Value. Slides by Emma Tracanella

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Value analysis

  1. 1. Value Analysis IED Lesson 4Emma
  2. 2. Course program1. Italian Startups2. Set up a startup in Italy3. Ive got an idea. And now?4. Value analysis5. Business model6. Communicate, communicate, communicate7. Being net8. Find your market9. Funding: venture capital, business angel and otherways of financing10. Pitch
  3. 3. Todays table of content1. Direct and Indirect Costs2. Cash and Accrual Basis Accounting3. Perceived Value
  4. 4. Ive got an idea. And now?: quick recapDuring last lesson we discussed:1. General design principles (no ToDo list available..)2. Definition of a project (clear goal that must be reached in a fixed time using available resources)3. Product life cycle (planning, analysis, design, implementation, maintenance... maturity and decline or evolutionary maintenance and a new cycle)
  5. 5. Ive got an idea. And now?: quick recapWe detailed • Some basics useful from concept to company • What is a lean startup • How to formalize and write my project • Who can help me (Kublai, business incubators, seed accelerators)
  6. 6. All you need to know about costs
  7. 7. CostsIn production, research, retail, and accounting,a cost is the value of money that has beenused up to produce something, and hence isnot available for use anymore.Two kind of costs: • Direct costs • Indirect costs
  8. 8. Direct costsCosts that can be identified specifically with aparticular project or activity, or that can bedirectly assigned to them with a high degree ofaccuracy.Direct costs generally includes: • Salary and wages • Material, supplies and equipment purchased directly for the specific project • Communication and travels costs
  9. 9. Indirect costsCosts that are not classified as directIndirect costs generally includes: • Salary of administrative staff providing normal support activities • Office supplies, computers • Local telephone calls • Memberships=> Overhead
  10. 10. BykesDirect costs: • Metals • Wages for assemblyIndirect costs: • Abrasive, glue, pink • Rent • Insurance
  11. 11. Actual cost of doing business• Before you can price a product or a service, you need to know your cost to produce it.
  12. 12. Photographer• How much charge a photo?• Minimum fee?• No costs?A useful tool: the Cost of Business calculator. It listannual expenses, but it depends on your inputswhich can be hard to estimate.
  13. 13. Cost of doing business calculator/1Expenses• 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
  14. 14. 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
  15. 15. Cost of doing business calculator/3• Professional Development• Advertising and Promotion• Subsciption and Dues• Equipment and Business Insurance• Health Insurance/Deductibles/Copays• Legal and Accounting Services
  16. 16. Cost of doing business calculator/4• Taxes and Licenses (Business and Self- Employment)• Office Assistance (Payroll, Answering Service, Intern, etc.)• Utilities• Travel and Entertainment
  17. 17. Cost of doing business calculator/5Income factors• Desired Annual Salary• Non-assigment Income• Number of Days You Can Bill Per Year
  18. 18. Cost of doing business calculator /6
  19. 19. Accounting• The difference between cash and accrual basis accounting has to do with the time frame in which revenues and expenses are recorded and reported.• Cash basis accounting will suffice if your business is a simple one. However, the accrual basis will give a more accurate picture of the results of business operations.
  20. 20. Cash Accounting• Revenues are reported on the income statement in the period in which the cash is received from customers.• Expenses are reported on the income statement when the cash is paid out.Focus on the amount of cash in bank and on makingsure all bills are paid.
  21. 21. Accrual Basis Accounting• Revenues are reported on the income statement when they are earned - which often occurs before the cash is received from the customers.• Expenses are reported on the income statement in the period when they occur or when they expire - which is often in a period different from when the payment is made.Provides more information about the business andgives meaningfull financial reports.
  22. 22. 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 wetalk to our customers?
  23. 23. Gillette Fusion• Amazon’s price: 19.25$• 8 cartridges• Cost/cartridge: 2.41$• You need the razor (11.49$)
  24. 24. Gillette Custum Plus Disposable • Amazon’s price: 20.97$ • 30 razors • Cost/razor: 0.70$
  25. 25. Gillette Fusion vs. Custom PlusPrices • 19.25$ vs. 20.97$ • 8 cartridge vs. 30 razorsCost in use • 2.41$ vs. 0.70$Additional perceived values justify the additional costin use • Durability of blade • Comfort • Less irritation
  26. 26. Gillette IdeaBy providing something at below the market price(the razor), you can create a market for a secondaryproduct (the blade) upon which you make ongoingprofits.The mark-up on the secondary products isdisproportionate relative to their cost so were highlyprofitable for the manufacturer.
  27. 27. 3M Scotch® Tape• Amazon’s price: $1.70• Lenght 650 inches• Cost/inch: $0.003• Cost to hang a poster: $0.01
  28. 28. 3M Scotch® Command Strips • Amazon’s price: $2.70 • 12 strips • Cost/strip: $0.08$ • Cost to hang a poster: $0.32
  29. 29. 3M Scotch® Tape vs. StripsPrices • $1.70 vs. $2.70 • Using Scotch Tape, the user can hang 75 posters vs. 3 for the command stripsCost in use • $0.01 vs. $0.32 to hang 1 posterAdditional perceived values justify the additional costin use • Less damage to wall • Simplicity to remove • Durability
  30. 30. A-StyleLogo • 1989 stikers on the walls of Milano and Roma • Patented by Italian designer Marco BrunsClothing Brand • Italian brand founded in 1999A-style has used street-level buzzmarketing to grow to internationalprominence
  31. 31. 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 seriesRe-establishing Lacoste as “a distinctive premiumbrand”
  32. 32. More Examples
  33. 33. FreemiumGiving away a product that people want for Free andSelling premium products.• Skype: • A free quality product • Selling cheap calls to ordinary phones• Only 8% buy something
  34. 34. 4 Freemium Models• Time-limited• Feature-limited (Dropbox – Flickr)• Seat-limited• Customer-type limited
  35. 35. Advertising ModelBecame popular with the growth of radio and TV. • Indirect revenue from people looking to promote services • Increasingly difficult • Youtube, Facebook
  36. 36. Low-Cost Model• Significant volumes of customers (at a lowcustomer acquisition cost) and by charging a verylow price• Revenue from a whole host of ancillary sources• Ryanair
  37. 37. Analyze Competitors
  38. 38. Next weekBusiness model. (with Frieda Brioschi)