Cost Structure Flashcards
What are cost structures?
- Describes the most important costs incurred to operate a business model
- This block represents the costs incurred by the venture in creating, delivering and capturing value. Costs are best determined once key activities, key resources and key partnerships have been defined
What are the broad approaches to structuring costs/
- Cost-driven: aimed at minimising cost wherever possible
- Value-driven: aimed at emphasising value creation
What are the types of costs?
- Fixed costs
- Variable costs
- Entrepreneur’s Perspective
What are fixed costs?
- Represent costs that remain the same regardless of the volume of offerings generated.
- Salaries, fees and rent
- These costs can be easier to plan for, but require a constant stream of revenue to cover
What are variable costs?
- Represent those that vary proportionally with the volume of offerings generated
- Utilities, materials and promotional activities
- Variable costs can prove difficult to manage for cash-poor business models. it can often be a good strategy to seek partnerships that allow you to cover as many of these as possible
What is the entrepreneur’s perspective on costs?
- Start up costs
- These are the costs and expenses that the venture needs to cover in order to begin operating in the market
- These include business establishment costs, development costs, equipment costs, legal fees etc
- Operating costs
- These are the variable and fixed costs that a business will have to incur in order to operate continuously
- These include maintenance costs, wages, promotion costs, rent, utilities, taxes/tariffs etc. These should be covered through the business model’s revenue streams or partnerships
What is the long tail BM?
- Selling less of more: focus on offering a large number of niche products, each which sells relatively infrequently
- Require low inventory costs and strong platforms to make niche content readily available
- e.g. Netflix, eBay
- Doesn’t require firms to select ‘market-worthy’ work, i.e. book publishing
What have been the trigger of the long tail BM in the media industry?
- Democratisation of tools of production
- Democratisation of distribution
- Falling search costs to connect supply with demand
What is the VP in a long tail BM?
- Characterised by offering a wide scope of ‘non hit’ items that may co-exist with ‘hit’ ones
- May also facilitate and build on user-generated content
What is the CS in a long tail BM?
- Niche customers
- May create a multi-sided platform: niche content providers
What is the KR in a long tail BM?
Platform
What is the KA in a long tail BM?
- Platform development and maintenance
- Niche content acquisition and production
What is the R$ in a long tail BM?
- Aggregating small revenues from a large number of items
- May come from advertising, product sales or subscriptionse
What is the C$ in a long tail BM?
Platform development and maintenance
What is the CH in a long tail BM?
Usually rely on the internet as CR and/or transaction channel
