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Fixed o Flexible
Four Simple Lessons AboutCost, Price, Margin and The OptionsAvailable to The 21st Century Business
by Todd Satersen
Version 1.13 - March 29, 2010
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Inroducion
Fity years ago, most o your choices were xed. Tere was one grocery storein town with two brands o four. Your television had a dial with ample roomon its ace or the one o three networks you’d be watching that night. Goback a little urther and you can nd names like Rockeeller and Carnegie who amassed ortunes by controlling oil and steel options.Now the baking aisle stocks dozens o types o four rom all-purposeto sel-rising to the oxymoronic white-wheat. Your television now needsa second or even third electronic box to manage the hundreds o networksand to record what you can’t watch in person. And the lessons o steelmakers were picked up by sotware developers, but the story seemsto be ending dierently.Fixed has been replaced with fexible. Control o a product category,distribution channel or branding message no longer exists. While this isbeing heralded as a boon or customers, companies have been slower to adaptto the new terrain. Companies with multi-national presence and individuals with multitudes o projects both need to create a new set o strategies.Tis ebook collects the commercial aspects o cost, price, and margin andpresents a variety o alternatives about how to make your way in the world o innite choice.
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The Players
Tis ebook is about two points and the distance between them.Price is the amount you can charge or the product or service you provide.Nothing dicult there.Cost is the debt you incur or providing that product or service to yourcustomer. o complicate things a little, we are going to dene cost as acombination o the variable costs (e.g. materials) and the proper allocation o xed costs (e.g. rent). Tis orces us to straddle the ence between economicsand accounting and bend the rules o both.Te space between price and cost is margin. Accountants like to use the wordprot. Stock market analysts talk about earnings. Tey all mean the samething: what’s let over ater all is said and done.By its nature, margin is a secondary measurement, one that we can know only by rst knowing price and cost, but margin is also the most importantmeasure in any business.
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PriceCosMargin
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