Costs of BetterWorldBooks
In the light of our below cost analysis, we decided the best idea was to establish the company’s activities in the UK since its employee cost is lower than in Germany and France.
I. Variable Costs
UK
Germany
France
Employees
Ratio (Sales/Employee)
= $55 million/ 350
= $157.142/employee (Raphael, 2012)
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Average salary in the U.S. (entire country, 2014) : $46,481 (The United States Social Security Administration, s.d.)
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Average salary for BWB employee in the U.S. : $53,757 (Salary list, 2010).
This means BWB employees are paid 1.15 times the average salary.
Knowing that the average salary in the UK (entire country, 2014) is £26,500 (Accounting Services For Business, s.d.), we can conclude that BWB employees should be paid 1.15*26,500 = £30,475 on average.
Warehouses
Ratio (Sales/warehouses)
=$55 million / 1 warehouse (in Indiana) =$55 million/warehouse (SJF Institute Case Study, s.d.)
£ 5-7 per square feet rented in the UK → £ 50-70 / m2 year in average (Statista, 2016 : « Rental cost... »)
250.000 square feet (approximately 2.300 m2) warehouse in the USA, Indiana (Visit Mishawaka, s.d.).
Therefore the ratio should be $ 55.000.000/ 250.000 = $220/sq. ft.
Employees
Ratio (Sales/Employee)
= $55 million/ 350
= $157.142/employee (Raphael, 2012)
-
Average salary in the U.S. (entire country, 2014) : $46,481 (The United States Social Security Administration, s.d.)
-
Average salary for BWB employee in the U.S. : $53,757 (Salary list, 2010).
This means BWB employees are paid 1.15 times the average salary.
Knowing that the average salary in Germany is £30,000 (Luciani, 2015), we can conclude that BWB employees should be paid 1.15*30,000 = £34.500 on average.
Employees
Ratio (Sales/Employee)
= $55 million/ 350
= $157.142/employee (Raphael, 2012)
-
Average salary in the U.S. (entire country, 2014) : $46,481 (The United States Social Security Administration, s.d.)
-
Average salary for BWB employee in the U.S. : $53,757 (Salary list, 2010).
This means BWB employees are paid 1.15 times the average salary.
Knowing that the average salary in France is £ 34.000 (Luciani, 2015), we can conclude that BWB employees should be paid 1.15*34.000= £39.100​ on average.
Warehouses
Ratio (Sales/warehouses)
=$55 million/ 1 warehouse (in Indiana) =$55 million/warehouse (SJF Institute Case Study, s.d.)
It varies between 40-70 Euros/m2 a year in average (£ 30-55)
Warehouses
Ratio (Sales/warehouses)
=$55 million/ 1 warehouse (in Indiana) =$55 million/warehouse (SJF Institute Case Study, s.d.)
It varies between 50 Euros – 80 Euros / m2 year in average (£ 40-63)
In conclusion, one can note that employees costs are the lowest in the UK then in Germany and the highest in France. On the other hand, warehouses costs are the lowest in Germany then in France and the highest in the UK.
In other words, if BWB Europe will have a lot of employees, it will be better off to implement in the UK even though the warehouses costs are high.
Cost of Employees
Calculus explanation:
To calculate the cost of employees by market share, we took the results of the previous section for each year (example: 8.366.100 Pounds of a revenue for a market share of 1%) and we multiplied it (i.e. the revenue by market share for a specific year) by the following ratio in order to have coherence with BWB US:
Ratio= Number of employees/Total turnover (for the US)
= 350 employees/43.450.000 Pounds
Warehouses Costs
Calculus explanation:
To calculate the cost of warehouses by market share, we took the results of the first section for each year like stated before (example: 8.366.100 Pounds of revenue for a market share of 1%) and we multiplied it (i.e. the revenue by market share for a specific year) by the following ratio in order to have coherence with BWB US:
Ratio= BWB warehouse Area/Total turnover (for the US)
= 2.300 m2/43.450.000 Pounds
Finally, we multiplied the whole by 60 Pounds/m2 per year, which is the cost of renting a warehouse in the UK.
The graphs of variable costs depending on the market share can be seen on the budget page.
II. Fixed Costs
1/ Website Costs (Parr, 2015):
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Website creation costs:
➢ Small e-commerce (5 main sections, total pages : 10):
-Planning – $0 – $600
-UX (sitemap, wireframes) – $0 – $1200
-Visual Design– $1,200 – $2,400
-Programming – $3,000 – $4,800
-Content Support – $240 – $600
-Client Training / Documentation – $240 – $600
-Testing and Launch – $960 – $1200
Total Cost: $5,640 – $11,400 (and up, depending on requirements)
➢ Small business (7 main sections, total pages : 20)
-Planning – $600 – $1200
-UX (sitemap, wireframes) – $0 – $600
-Visual Design – $960 – $2400
-Programming – $3000- $7200
-Content Support – $240 – $600
-Client Training / Documentation – $0 – $600
-Testing and Launch – $960 – $1200
Total Cost: $5,760 – $13,800 (and up, depending on requirements)
➢ Medium business (7 main sections, total pages : 30):
-Planning / UX (sitemap, wireframes) – $600 – $ 2400
-Visual Design – $1200 – $2400
-Programming – $3800 – $4800 (for smaller websites)
-Programming – $4800 – $9600 (for larger websites)
-Content Support/ Migration – $600 – $1200
-Client Training/Documentation – $0 – $600
-Testing and Launch – $960 – $2,400
Total Cost: $7,160 –$18,600 (and up, depending on requirements)
➢ Large business (8 main sections, total pages : 40)
-Planning / UX – $1,200 – $2,400
-Visual Design – $2,400 – $3,600
-Content Support/ Migration – $600 – $1800
-Programming – $7,500 – $15,500
-Client Training / Documentation – $600 – $1800
-Testing and Launch – $2,400 – $4,800
Total Cost: $14,700 – $29,900 (and up, depending on requirements)
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Other Website costs:
➢ URL: $10/year
➢ Hosting: $50/year
➢ Maintenances: $500/year
➢ Marketing: $750/ month (cost of putting our website link all over the internet with other websites)
2/ Other fixed costs
These include logistics costs, delivery costs and sales commissions. In our internal analysis, we saw that BetterWorldBooks often pays a commission of 8%. Logistics costs were estimated thanks to Establish (2014) whereas delivery costs were estimated thanks to Amazon’s 2015 annual report (2016).
The graphs of variable costs depending on the market share can be seen on the budget page.
Calculus explanation:
We said that fixed costs include logistics, delivery, commission and website costs. To calculate the first three costs, we took the results of the first section for each year (example: 8.366.100 Pounds of a revenue for a market share of 1%) and we multiplied it (i.e. the revenue by market share for a specific year) by the following sum:
Sum=Logistics + delivery + commission
=11,6%+9,34%+8%
We finally added the website costs, which do not depend on our market share nor on our revenue.