Good cost management can bring many benefits to the organization. Discover the main ones:
- Spending reduction: when you know the business costs well, it is easier to know which ones can be cut or reduced. The best thing is that this can be done without harming the operation or the quality of deliveries;
- Better pricing: as we said, the first step towards correct pricing is knowledge about the true production costs;
- Better decisions: knowledge about costs serves as a basis for data-driven decision making;
- Risk reduction: not knowing the dynamics behind business costs is one of the reasons why companies go bankrupt;
- More productivity : understanding the financial situation and the cost logic of the business gives the manager greater control over the company’s productivity;
- Increased profitability: as you already know, the lower a company’s production costs, the greater its profit margin.
How Does Cost Management Work?
Now let’s go to practice? Next, you will understand how each step of cost management works within a company!
Cost Per Service
The first step of the work is to survey the costs of each product or service sold by the company.
For this, it is necessary to add up everything that is invested in labor, raw materials , equipment and everything that may be involved in the production stages.
Then, with these costs in mind, it’s time to price each product or service. At this point, you must consider, in addition to costs, expenses and the desired profit margin.
Finally, with the aim of increasing the profitability of the business, the manager must make an in-depth analysis of all the company’s costs.
Thus, you can list those that can be reduced and those that can be eliminated – all this, of course, without reducing the quality of deliveries!
Why is Efficient Cost Management Important?
Cost management is essential for the financial health of a company. And, if you’ve read this far, you certainly already know the reasons, don’t you?
Without work in this sense, products will hardly be sold at the correct price. This puts the company at risk of operating in the red or just at its break-even point, without bringing profit to its investors.
In addition, cost management plays a very important role in increasing profitability. Finally, the company’s ability to invest in its own growth is also enhanced.
What Are The Types Of Costs?
Now that you know how important cost management is, how about learning more about the concept of cost?
A company’s costs are expenses that are directly related to its production . In other words, without them, products cannot be manufactured or services cannot be offered.
They are different from expenses , which are expenses for production support sectors, such as human resources and finance, for example! Below, see how the costs of a business are classified:
Fixed costs are those that happen frequently, regardless of the volume produced. Some examples are space rental, equipment maintenance, and employee salaries.
Variable costs are those that increase or decrease with production volume. A good example is the purchase of raw materials and packaging!
Costs can also be classified as direct and indirect. The direct ones are those that have a direct relationship with the product, influencing the final value. Some examples are labor and raw materials.
Indirect costs are those that are not related to the service, but which must also be accounted for. The main examples are expenses with gasoline and food for employees, among others.
What Are The Most Common Mistakes In Cost Management?
In addition to knowing how to manage costs , it is recommended that the manager is always on so as not to make mistakes that could compromise his work.
How to Calculate Your Company’s Current Costs?
Calculating the company’s costs is simple. Just add up the values of all the investment that was made to make production possible.
In fact, most of the work is in raising these costs. The collection of this data must be done with care and considering everything that is invested, even if the expenses are small.
Also, it’s important to pay attention to the period. If you calculate the labor cost per month, you must also consider the amount of raw material for the month. That’s even if you made a purchase of sufficient volume for longer periods!