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For a company like GoodGuide, who make their money not by selling a hard product (with investment costs etc) but by selling product placement and business intelligence, what are their variable costs?

I understand what variable costs are for a pizza shop, where the costs vary based on the number of pizzas made and sold. More product = higher costs.

But in general, how do you talk about variable costs for a company that provides information?

  • This question is not about an issue of personal finance that the OP is facing and it should be closed, – Dilip Sarwate May 13 '14 at 16:52
  • @DilipSarwate The site is called "Personal Finance and MONEY". The question relates more to the "Money" aspect (costs, expenses, etc) – CodyBugstein May 13 '14 at 17:28
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    No, the Personal qualifies Money as well. You are not asking about any money matters regarding your own financial problems but rather about software companies in general, and so I still feel that this question is off-topic for this site, even though it has an accepted answer. – Dilip Sarwate May 13 '14 at 18:02
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Marketing, namely advertising (Facebook, Google ads, maybe magazines, etc.)

Despite all the nice words about "healthy, green, and socially responsible", the business of this company (and many, many similar ones) is not "providing information". It's affiliate marketing - getting people to click through to retail sites and buy stuff, on which the company earns commissions (often they also get paid for registrations).

In a very real sense, their product is customers. They sell paying customers to the retail sites, and before that, they basically have to buy "raw customers" through advertising. The times when you could rely on getting enough people to visit your website for free are largely over - there is too much competition for peoples' attention. They can only be profitable if they can get the raw customers cheap enough, and can convert enough of them to paying customers.

And this is really how it's talked about internally, in what is by now a highly organized industry: key performance measures are CPC (how much does it cost to get someone to come to your website), conversion rate (what percentage of visitors register) and ARPU (average revenue per user).

  • Very interesting analysis! – CodyBugstein May 13 '14 at 16:46
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One of the things that make internet companies so profitable is that there is no additional costs to "sell another widget". With something like EBay, there is no additional cost to add another auction/sale. While this is true for a single auction, it eventually becomes untrue. If you add one million auctions, the company may pay additional bandwidth, storage fees, system engineering fees, and even development fees to make the site able to handle that much volume.

Sorry that I am unfamiliar with GoodGuide but I am sure you can extrapolate.

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