Suppose you have a job providing coffee for all the partners of a firm, say 10 partners. The partners come by your stand and you are tasked to provide each one with coffee whenever they ask. If they do not get their coffee, empires will lie in ruins so failure to provide coffee is not an option. You are selling coffee of exceptional quality.
At times, all 10 come by to get coffee so you had to spend extra to get the Jetson's Ten-Cup-O-Rama coffee maker so you will be ready if they all come by at the same time. The financing for this amazing coffee maker costs you $51 per month. On average the partners drink 6 cups per day each. On average you are selling 1,020 cups per month so this comes out to a financing cost recovery of 5 cents per cup.
Your all-in space rental is $85 per month so you charge each partner a coffee-club members fee of $8.50 per month.
The costs that depend on the amount of coffee made (like coffee, filters, cups etc) run you about 30 cents per cup.
The overheads, etc are $102 per month and average 10 cents per cup.
Your margin is 5 cents per cup.
So you charge:
Member ship fee of $8.50/month per partner
A per-cup fee of $0.05 (financing) + $0.30 (volume costs) + $0.10 (overheads) + $0.05 (margin) = $0.50 per cup.
The monthly revenues are:
1020 cups * $0.50 per cup + $8.50 * 10 partners = $595
The monthly expenses are:
$51 (Ten-Cup-O-Rama) + $85 (rent) + $102 (overhead) + 1020 * $0.30 (volume costs) + 1020 * $0.05 (margin) = $595
Now comes along the idea that a select number of partners might brew their own coffee if they want, but you still have to provide coffee if they decide to not brew their own. If they brew any extra coffee that they do not drink, you have to buy it from them. They also have the option to brew extra coffee in the morning and to have you absorb this extra into your coffe supply, but they can get a fresh cup of coffee later in the day at no charge because they provided you an extra cup of fresh coffee earlier in the day.
The $8.50/partner/month is like the fixed charge that dominion charges per month (the $7 fee). It does not cover any of the other fixed costs or variable costs. The other charges from Dominion are like the per-cup charges and revenue recovery is based on how many cups are sold. These sales are used to cover both fixed and variable charges (like demand and energy for dominion).
Now, play with the coffee numbers and see how you as a coffee provider will benefit when a partner starts brewing coffee.
Think about:
What costs are you able to eliminate if a partner brews their own?
Will you have to adjust your per-cup charge if partners brew their own sometimes?
If you allow for the extra cups of partner-brewed coffee every now and then, how will you have to modify the per-cup charge to break even?
How does buying the partner-brewed coffee impact the costs to everybody else?
What impact does "storing" the extra partner-brewed coffee so they can get a no-charge fresh cup later have?