Friday, July 14, 2006

Right to the bottom line

Lemonade Stand Economics 101

Stopped at a corner lemonade stand this afternoon for some delicious refreshment. The beverage was tasty, if a little warm (needed ice), the service was polite and prompt, but the price seemed maybe a little high for a less-than-premium product. 50 cents a glass (in a big plastic cup and not filled all the way) is the going rate nowadays.

Now we all know that in a fair market, supply and demand regulate cost at what the market will bear. Further, inflation and rising labor costs contribute in equal but different ways to the rising price of commodities, including, in lesser part, the raw ingredients of lemonade. Oil prices have skyrocketed per barrel leading directly to rising costs of petroleum products including plastic cups. Assuming the real estate has been procured for the lemonade stand and the raw ingredients are already factored out of net revenue, and the lack of competition in the area, this lemonade stand can project some pretty healthy profits. I only wonder, had they opted for a more enviro-friendly serving choice, maybe smaller biodegradable paper cups, that they would have

A) reduced the labor needed to remove the trash from the stand, thereby reducing overhead

B) increased the customer experience by giving them a full cup while still serving the same amount of product, and

C) increased sales by attracting new environmentally sensitive customers.

I think I'll take what I know about their practices, set up across the street and put 'em out of business. It's a tough world out there and business is business.

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