A few companies have tried the “single-product” business model, and they have always failed. Most recently, GoPro tried to focus on making only action cameras, but had to quickly shift towards creating a suite of products to stay afloat.
This is due to the fact that companies need revenue streams to pay their expenses. A company needs money from other sources to invest in new products, services, and research and development.
How does a company manage this dilemma? By having multiple sub-companies that each produce their own separate products or services.
By having multiple sub-companies, each with their own budgets and expenses, a larger organization can manage this problem. This also allows for easier reorganization of departments depending on the needs of the organization as a whole.
Advertising
One of the biggest expenses for any company is advertising. Companies pay big money to have advertisements on radio, television, online, and in print.
Since Menlo Company only has one product, it does not have to invest in advertising for its products. This is a major advantage over companies that have a wide range of products.
Advertising is a waste of money if you do not have a quality product. People will quickly figure this out and turn away from your business.
The company does invest in marketing efforts though. These include social media posts, email campaigns, and events to promote the company’s product. These are done at low costs to maintain their effectiveness.
Manufacturing
When a company only has one product, the manufacturing cost can be high. For example, if Menlo Company only manufactured one product, the cost of producing that product would be high.
Fortunately, Menlo Company manufactures several different products, which helps keep production costs down. Because they have different products to manufacture, the time it takes to manufacture each product is also shorter.
By having shorter production times for each product, they are able to get more downtime compensation for their workers and equipment. This helps keep the costs down for the company!
The company also has a good system in place to ensure quality of their products. They have quality control inspectors that check each and every product before it is shipped out. This prevents any faulty products from being distributed to customers.
Administrative
Administrative expenses are those that relate to general business operations. These include expenses related to marketing, advertising, legal fees, and accounting.
Marketing costs include things like advertising on social media platforms, paid advertising sites like Google Ad or LinkedIn, and event marketing.
Advertising typically involves printed materials like brochures or posters, and/or radio or television advertisements. Legal fees can include things like patent or copyright registration fees, litigation costs, or business formation expenses. Accounting costs can be for tax prep services or bookkeeping services.
For businesses with a sole product, administrative expenses are relatively simple. All of these costs can likely be accounted for in one place: the company’s accountant. However, for companies with multiple products, accounting may be a separate expense. By having an accountant that is familiar with their products and cost structure within the company, administrative expenses can be minimized. Accounting is a cost that is necessary for any sized business due to tax regulations. Having an in house accountant that is trained and educated in your specific needs can help lower this expense. Cost of labor varies depending on the education and experience level of the employee(s). Having someone educated in your specific needs will reduce the need to hire outside help which increases this expense.
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Rent
Rent is the largest expense that Menlo Company has. They pay $4,000 every month for their office space, which includes five employees. Since there are only five employees, that is the maximum amount they can pay in rent.
Since there are no other expenses for them besides rent, they can easily divide up their expenses by person. Since there are only five people working at the company, each person pays $860 per month in rent.
Since they only have one expense, it is easy to track how much money they spend per person per month. They can also easily see if someone is spending too much money due to the simple breakdown of expenses.
The only issue that could arise is if one of the employees moves to a bigger apartment due to a growing family. Then the company would have to look into finding a cheaper place or moving to a bigger building with more rooms so that an employee can move his family along with the company.
Electricity
One of the biggest expenses that Menlo has is for electricity. They pay for the amount of electricity their machines use, as well as the cost of having a connection to the national electric grid.
Because they have to have a connection to the national electric grid, this expense is unavoidable. However, they are able to monitor how much they are paying for electricity by tracking their machine usage.
By keeping track of this, they can see when their electricity costs increase and try to find a way to decrease it while still maintaining production. They can do this by finding ways to reduce machine usage without halting production.
Interestingly, despite all of the media coverage about climate change and how we need to reduce our carbon footprint, the price of electricity has not gone down in the past several months.
Employees
One of the biggest expenses for any company is its employees. Employee compensation can include salary, bonus, stock, and other perks.
Companies with few employees can manage the work themselves, but as companies grow, they need more hands to push forward. More employees means more productivity for the company.
Very large corporations may have thousands of employees, some of which are management structure. These higher-up people are there to direct and oversee the production of the company’s goods and services.
Employees can be paid a fixed salary or a variable salary depending on how the company chooses to pay them. A fixed salary is the same every week or month regardless of productivity. Variable salaries increase with increased productivity.
