Added value is the by-product of adding value.  When you take raw materials and "process" them, you are adding value and the resultant product has added value.

Confused?  Let's put it in simple terms:

A tree is cut down (processed) by a lumber jack.  He will be paid the basic value of the tree and for his added value of processing the tree.  A freight company moves the processed log to the lumber mill.  They are paid for the added value of getting the log to the mill.

The mill will "process" the log into lumber.  They will be paid for their added value of converting the raw material into usable lumber.  The lumber is moved by another freight company to the lumberyard-- again being paid for their added value of transport.  The lumberyard "marks up" the lumber for the convenience of the purchase and other overhead considerations (more added value).

Next, a furniture maker comes and purchases the lumber and adds value to it by making (processing) it into an unfinished dresser and sells it to an unfinished furniture store.  They mark it up and sell it to an artist who paints and decorates it with a design (their added value).  The artist sells it to a trendy boutique.

The boutique marks it up (more added value) and sells it to a suburban housewife from Spendthrift Manor (see my post from DivorcedDadFrugalDad.com, Spendthrift Manor and Frugal Homestead) with too much time and money on her hands.

I could do a similar example with a farmer growing grain all the way to the bread on your table . . .

Any "processed" products have added value.  Middlemen have been adding value to take it from raw materials to finished (processed) goods.  What does this mean to you?

Do you want to save money or make money?  Cut out the middleman or be the middleman.  Buy raw materials and add the value yourself.  You save money on what you consume and you make money on what you sell to others . . .

This post originally appeared on DivorcedDadFrugalDad.com, here is the link to the original post: Added Value and Adding Value . . . .

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