Value added

Value add refers to "extra"
feature(s) of an item of interest
(product, service, person, etc.)
that go beyond the standard
expectations and provide
something "more" while adding
little or nothing to its cost. Value
added features give competitive
edges to companies with
otherwise more expensive
products.
In economics, the difference
between the sale price of a
product and the cost of
materials and outside services to
produce it is the value added
per unit. Summing value added
per unit over all units sold is
total value added. Total value
added is equivalent to Revenue
less Outside Purchases (of
materials and services). Value
Added is a higher portion of
Revenue for integrated
companies, e.g., manufacturing
companies, and a lower portion
of Revenue for less integrated
companies, e.g., retail
companies. Total value added is
very closely approximated by
Total Labor Expense (including
wages, salaries, and benefits)
plus "Cash" Operating Profit
(defined as Operating Profit plus
Depreciation Expense, i.e.,
Operating Profit before
Depreciation). The first
component (Total Labor
Expense) is a return to labor and
the second component
(Operating Profit before
Depreciation) is a return to
capital (including capital goods,
land, and other property). In
national accounts used in
macroeconomics, it refers to the
contribution of the factors of
production, i.e., land, labour,
and capital goods, to raising the
value of a product and
corresponds to the incomes
received by the owners of these
factors. The national value
added is shared between capital
and labor (as the factors of
production), and this sharing
gives rise to issues of distribution.