𝗛𝗮𝘃𝗲 𝗬𝗼𝘂 𝗖𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲𝗱 𝗬𝗼𝘂𝗿 𝗖𝗼𝘀𝘁𝘀 𝗖𝗼𝗿𝗿𝗲𝗰𝘁𝗹𝘆?
Total Costs and Average Costs of providing your product/service to market
Before I discuss this topic, please note that since I am shifting some posts over this week to this newsletter from LinkedIn, you might get two emails or so each day. It should normalize to only one email/post daily, by Sunday! Thank you for your patience!
In the previous post, we discussed how to estimate the demand for your high-value tool (AI or SaaS) or service.
In this one, we will take a look at your potential costs of providing the product/service to your consumers.
Watch the video first and then read the explanation for the best understanding!
Costs consist of the payments that you make such as:
1. Rent (raw materials or space allocated),
2. Wages (labor),
3. Interest (paid on capital), and
4. Entrepreneurial profit (paid to CXOs and decision-makers)
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𝘚𝘐𝘋𝘌 𝘕𝘖𝘛𝘌: "𝘌𝘯𝘵𝘳𝘦𝘱𝘳𝘦𝘯𝘦𝘶𝘳𝘪𝘢𝘭 𝘱𝘳𝘰𝘧𝘪𝘵" 𝘪𝘴 𝘢𝘯 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘤𝘴 𝘵𝘦𝘳𝘮 𝘢𝘯𝘥 𝘥𝘰𝘦𝘴 𝘯𝘰𝘵 𝘮𝘦𝘢𝘯 𝘵𝘩𝘦 𝘴𝘢𝘮𝘦 𝘵𝘩𝘪𝘯𝘨 𝘢𝘴 𝘗𝘳𝘰𝘧𝘪𝘵 (𝘵𝘰𝘵𝘢𝘭 𝘳𝘦𝘷𝘦𝘯𝘶𝘦𝘴 - 𝘵𝘰𝘵𝘢𝘭 𝘤𝘰𝘴𝘵𝘴)
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Based on the quantities that we identified in the previous post; we need to calculate the Total Costs and Average Costs for each quantity that we are able/willing to supply.
The key quantities were: 70, 80, 100, and 130.
If the corresponding total costs are $2000, $2400, $3200, and $5000, calculate
Average Costs = Total Cost/Quantity.
Then the Average costs would be $28, $30, $32, and $38 per unit of product/service to you, the producer.
In a uniform pricing structure, it would make most sense to supply 70 units to the market because that quantity has the lowest Average Cost of $28.
𝗜𝗻 𝗮 𝘁𝗶𝗲𝗿𝗲𝗱 𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲, 𝘆𝗼𝘂 𝘄𝗼𝘂𝗹𝗱 𝗻𝗲𝗲𝗱 𝘁𝗼:
- stack the costs for the quantities supplied at each price
- identify how to minimize the total costs of all tiers combined
- recognize increasing complexity of data when stacking costs
- compare average and marginal costs more closely
- measure average and marginal revenues accurately
- restructure your resources, if required
𝗧𝗟𝗗𝗥: 𝗗𝗼𝗻'𝘁 𝗹𝗼𝘀𝗲 𝗺𝗼𝗻𝗲𝘆 𝗯𝗲𝗰𝗮𝘂𝘀𝗲 𝘆𝗼𝘂 𝗱𝗶𝗱 𝗻𝗼𝘁 𝗰𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲 𝗰𝗼𝘀𝘁𝘀 𝗳𝗼𝗿 𝘁𝗵𝗲 𝘁𝗶𝗲𝗿𝘀 𝗰𝗼𝗿𝗿𝗲𝗰𝘁𝗹𝘆, 𝗶𝗻 𝗮 𝗿𝘂𝘀𝗵 𝘁𝗼 𝘀𝗰𝗮𝗹𝗲!
If you are worried about your costs:
I can analyze your complex data
I provide actionable and simplified solutions
I can save you from wasting your resources
DM me for more info!