Strategy Unit Economics

Dealing with waste in certain ways can make or lose money. When a business does this well, it shows it's meeting people's needs and adding value. There are different scenarios in this, from focusing just on reducing waste's risks to recovering resources from waste. The economic goal is always to make sure that efforts put in every strategy pays off.

Profitability

Profitability is more than a mere financial measure; it reflects a business's ability to meet consumer needs efficiently, and acts as a fundamental metric in assessing the value a business adds to society. If value creation is a measure of the total value that a strategy adds to society, profitability is a measure of the resource efficiency of that value creation process. It signals that resources are being used where they generate the most value, as determined by market demand. When a business is profitable, it demonstrates that it's using resources in a manner that adds more value than if those resources were employed elsewhere. Furthermore, consistent profitability indicates a business’s capacity to adapt to market changes and continue meeting consumer demands, highlighting its long-term viability.

Profitability	Market Behavior	Example
Extraordinary	Indicates a high demand relative to supply, attracting investment and fostering innovation.	A company innovating in waste-to-energy conversion might initially see extraordinary profits due to the high demand and low competition, prompting more investments in this sector.
Regular	Represents a balanced market with aligned supply and demand.	A traditional recycling operation with stable demand and supply might operate with regular profitability, indicating a well-balanced market.
Low	Suggests a highly competitive market where efficiency is crucial for survival.	Companies in highly competitive markets, like standard waste collection and disposal, might operate at low profitability, pushing them to find more cost efficient methods to stay viable.
Negative	Signals unsustainable operations that need restructuring or innovation to become viable.	A firm attempting to recycle a material with high processing costs and low market demand might face negative profitability, necessitating a reevaluation of its business model or technology.

Costs & Revenues

In waste management, understanding the interplay between costs and revenues is crucial for analyzing profit margins. Costs represent the resources involved in executing a strategy, while revenues reflect the total value generated by the outcome. This interplay is the cornerstone of profitability and viability assessments. However, strategies involving recovery have slightly different mechanics:

	Control	Recovery
Costs	Costs are a function of the efforts required to reduce initial risk levels to a target risk level below the level of acceptance, as defined by regulatory frameworks or internal policy.	Costs are a function of the inputs required to add value to waste to an extent that its final output is marketable, usually a commodity.
Revenues	Revenues depend on regulatory requirements or generators internal policies. When regulated, the pricing of risk control services should be competitive enough to be preferable over potential fines or punitive measures.	Sales of recovered resources are closely tied to commodity prices. Competitive pricing is essential; if the recovered resources cannot be sold at market-competitive prices, economic feasibility diminishes.

Strategy Viability Analysis

The viability of a waste management strategy hinges on its ability to create and capture value. A strategy that incurs high costs but fails to generate adequate revenues is unsustainable. Conversely, a strategy that minimizes costs while maximizing revenue potential is more likely to be viable. Different scenarios and their implications can be identified:

Scenario	Description	Optimization Mechanisms
Exclusive Risk Control
P = (WM - C)/C	Relies solely on the revenue from waste management services, with no recovery. Viability depends entirely on the efficiency and effectiveness of these services. The higher the efficiency, the more competitive the risk control service prices.	Costs reduction: technological advancements, process optimizations, and economies of scale are potential areas for cost savings.
Exclusive Recovery
P = (RR - C)/C	Revenue is derived solely from the sale of recovered resources. This can be due to legal loopholes or other external factors that prevent capturing revenue from risk control services. The higher the efficiency, the more competitive the pricing of recovered resources in the market.	Costs reduction and application to regulatory recognition as official waste management service providers.
Risk Control + Recovery
P = (WM + RR - C)C	Relies on the combined revenues from these two streams covering all associated costs. The higher the value of recovered resources, the less dependency there is on revenue from risk control services. If resource commercialization is robust, it can lead to lower prices for risk control services.	Focus on optimizing costs reduction opportunities and ways to maximize the value of recovered resources.