Definition
Value added is a measure of the contribution to a product‘s worth by any organization that handles it on its way to the ultimate user. Value added is measured by subtracting the cost of a product (or the cost of ingredients from which it was made) from the price that the organization received for it.
For resellers, this means the firm’s gross margin; for manufacturing firms, it means the contribution over cost of ingredients. Presumably whatever work that firm did is reflected in the higher price someone is willing to pay for the product, hence that firm’s value added.[1]
References
- ^ American Marketing Association, AMA Dictionary.