3. 19 Covering the costs of a new product or service

3.19 Covering the costs of a new product or service Types of costs 1 Start-up costs:  Are payments made before, or soon after, the start of a project  Occur only once  May be quite high (eg for a new building )

3.19 Covering the costs of a new product or service Types of costs 2 Running costs:  These begin once the project has started  They arise on a regular basis  Must be paid for as long as the project lasts

3.19 Covering the costs of a new product or service Examples of start-up costs  New building or extension to existing building  New machines, including installation  Office equipment, including ICT  Market research and advertising  Initial stocks of materials  Installation of gas, electricity, telephone lines  New vehicles

3.19 Covering the costs of a new product or service Examples of running costs  Wages and salaries  Heating and electricity  Repairs and maintenance  Business rent and rates  Materials and stationery  Telephone  Advertising  Vehicle running costs (eg diesel fuel)

3.19 Covering the costs of a new product or service Which is which? 1 From the following list identify which are: a)start-up costs b)running costs c)costs which have nothing to do with the new project A sportswear retailer wants to open a branch in a neighbouring town.

3.19 Covering the costs of a new product or service Which is which? 2 1.Cash register for new shop 2.Rent for original shop 3.Original stock for new shop 4.Salaries to staff in new shop 5.Salaries to staff in original shop 6.Redecoration of new shop 7.Fittings for new shop 8.Electricity bill for new shop 9.Electricity bill for original shop

3.19 Covering the costs of a new product or service Warning!  Stock (initial stock = start-up; regular stock = running)  Advertising (initial adverts = start-up; regular adverts = running) Some types of costs can be both start-up and running costs, eg

3.19 Covering the costs of a new product or service Key questions to ask  Is the bill paid once only? If so, cost is a start-up cost.  Is the bill paid regularly? If so, cost is a running cost.