Costing digital products Flashcards
What are the differences between costing a digital product and a normal product?
*Digital product is without physical form and cost of reproduction are minimal compared to physical products.
*There are significant up-front design and development cost.
*There are lower, ongoing, often fixed cost during lifetime, compared with ongoing variable manufacturing costs for physical products.
*Often costs for materials are low but labour costs are high (eg freelance staff) for initial design and development.
*No inventory
What are the difficulties in costing a digital product ?
*Unit cost calculation requires knowledge of costs and sales volume.
*Difficult to predict sales volume, lifespan of the product and required amendments/updates.
*Creation costs are not always the end of the story - further lifetime costs are more difficult to estimate.
*Need good knowledge of market and how future technologies may impact the product.
*Determining how much of the total indirect cost relate to the product and how to absorb these (eg upgrades which benefit more than one product.
