Developing a costing system for an early stage digital agency start-up

Abstract

Purpose: The development of a costing system is the main aim behind this case study. The business model of the case study is to be understood and used as a basis on which the costing system is designed while analysing different profitability levels under different cost structures. Design: A qualitative research method was used to arrive at the research question and be able to analyse the case company. Thus, a case study approach was chosen and semistructured interviews internally in the case company and with industry market players were conducted. Findings: The findings portrayed that the case company was operating nearly at full capacity. Each package provided resulted to be profitable, and that a direct relationship between the level of capacity and the fixed cost per unit of production exists. The biggest effect on profitability was created by the fixed costs rather than the variable cost of production. Thus, the introduction of a piece rate system was looked into which resulted to be beneficial to the case company. Furthermore, a pricing examination was conducted which portrayed the ideal price strategy to use leading to the best profit scenario. Conclusion: A costing system will allow the case company to plan and take informal decisions based on numeric internal facts rather than intuition. The designed system provides a basis for continuation of current service creation practices while allowing for the introduction of new service lines.