Economic Illiteracy

[kevin_standlee]

I am dealing with an economic illiterate today. Eventually I will get tired of it and stop answering. After all, it's like teaching a pig to sing.

Specifically, the discussion was over variable and fixed costs of a convention membership. Variable costs are those that directly vary with the membership. You sell more memberships, you need more program books. Fixed costs are those that don't change, or don't change much within the range of anticipated attendance. The cost of renting your function space is fixed unless your membership count changes radically. The cost of annual filing fees for your non-profit corporation are fixed no matter what.

I responded to someone who started getting into fine-grain discussion of how much per member (in variable costs) computers for registration or other pieces of the convention cost. You're misleading yourself if you pretend that such fixed costs are variable. If you sell one more membership, you do not go buy twenty-five cents' worth of computers.

Anything in excess of the variable cost of servicing a membership goes toward paying the fixed overhead costs. That's elementary business economics. Trying somehow "allocate" overhead so that ever member is responsible for renting 1.37 folding chairs is a foolish exercise.

Comments

[drplokta]

Correct principle, bad example. Computers for registration are a variable cost, unless you think you can register 10 people and 1000 people in the same amount of time with the same number of computers.

[kevin-standlee.livejournal.com]

Not at all. But within the expected range, the costs don't change. Say I expect to register 1000 people and buy N computers to do so. (You decide what N is.) We open the doors and only 800 people turn up. My computer costs did not suddenly drop to 0.8N. Or 1500 people turn up. My computer costs did not suddenly rise to 1.5N, but my goodwill points take a hit because of the queue times.

Some costs are very smoothly variable. Others (and this is one of them) are fixed within a range in such a way that they shouldn't be treated as variable.

[drplokta]

You might say the same about programme books, or almost any other variable cost. If you expect 1000 members, you're going to print 1200 programme books -- if 800 people turn up, your costs don't drop and if 1500 people turn up then 300 are going to be disappointed, but your costs won't go up.

[buddykat.livejournal.com]

if 800 people turn up, your costs don't drop and if 1500 people turn up then 300 are going to be disappointed, but your costs won't go up.

Depending on the convention, your costs may very well go up. Westercon and Worldcon are both supposed to send publications to all members - supporting and attending. If you have more people turn up then you estimated and don't have enough books to send to your supporting members, you should be printing and shipping additional books after the con.

[kproche.livejournal.com]

Not if your membership system is network/web based. At that point, the cost of the system is fixed and you borrow computers to use as terminals.

There is some scaling to do with order-of-magnitude changes, as you say, but it isn't strictly per-member. If you plan it into your overhead (you know roughly how large a membership to expect) it can be covered.

Badge supplies, on the other hand, *do* scale on a per-member basis.

[sethb.livejournal.com]

That's on-site registration, which doesn't apply to supporting memberships.

[sethb.livejournal.com]

Unless you feel like donating half a million dollars or so to a Worldcon, the fixed costs have to be covered somehow. Allocating them to income items really is the right way to do it; the issue is how much to allocate to which items.

Since the attending members could (sort of) learn all the information at the Worldcon, perhaps the cost of publications should be allocated entirely to the supporting members. (That makes about as much sense as allocating none of the fixed membership-tracking costs to them.)

Why not allocate all the fixed costs to supporting members (that's their support) and only the marginal costs to attending members?

The total variable costs for all members is much less than the total cost. Claiming that low variable costs for somebody enables a low price doesn't scale.

[kevin-standlee.livejournal.com]

I didn't say you shouldn't be considering allocating some of the membership costs toward paying overhead; what I said is that it's pointless to treat fixed costs as though they were variable.

Since the attending members could (sort of) learn all the information at the Worldcon, perhaps the cost of publications should be allocated entirely to the supporting members.

Only if you don't print publications and send them to the attending members pre-con.

(That makes about as much sense as allocating none of the fixed membership-tracking costs to them.)

I never said that! What I said was that you don't go buy $0.25 worth of computer when you sell another membership. You don't go buy $3.17 worth of convention center when another member joins the convention. Your computer and facilities costs did not change. However, you are committed to spending $10 more than you were before in publications, so your total costs did change.

What I'm also saying is that whatever to take in over the variable cost is allocated to paying all the fixed costs.

The total variable costs for all members is much less than the total cost. Claiming that low variable costs for somebody enables a low price doesn't scale.

By that reasoning, we shouldn't sell supporting memberships for less than the cost of an attending membership.

[sethb.livejournal.com]

There's no reason to charge supporting members for the cost of supplies for the Con Suite. Charging everybody the average cost (plus a safety factor) for the class of membership makes sense. (Then you have to allocate fixed costs among the classes of membership, but that might be done by allocating costs that apply to several classes proportional to the membership of each class.)

[lisa-marli.livejournal.com]

You have my sympathies.
Do I know this person so I can add a Clue by Four?
Lisa Deutsch Harrigan
Treasurer CC26, multiple Mythcons, chair Mythcon 10 and Westercon 40

[nwl.livejournal.com]

Sorry to hear about this. People seem to know so little about finance these days, it's not surprising that so many people are going bankrupt. They have no idea how to manage money. Sad.

[jbriggs.livejournal.com]

Dude, just ignore Paula, like the rest of us do.