No matter how creative or innovative your business is, for it to be successful you need to know how to plan your costs . This is a fundamental practice in the management of any company, as it provides the necessary numbers to make assertive decisions and choose the best strategies.
Of course, this doesn't mean you need to be an "expert" on the subject to start a project, but understanding the basics is essential to being in control of the business . In an online class exclusively for LIT students, Prof. Dr. José Renato Jardim taught the fundamentals of cost management.
The essentials for planning your company's costs
Cost is investment
Although the word cost usually has a negative connotation, it is important to understand that it also means investment for the company. For example, implementing Artificial Intelligence to make denmark whatsapp data processes more efficient will involve costs, but at the same time it can guarantee benefits such as faster production, which in turn will translate into a competitive advantage over competitors.
In other words, costs, if well managed, can generate value for the business and, therefore, it is necessary to think about them strategically. The professor explains that the main problem related to this topic is that, when there is no control over costs, they begin to grow without generating value, becoming an unnecessary expense.
It is also important to emphasize that everything depends on the moment, both internal and external, that the company is experiencing. Times of growth call for investments that will further improve results, while a crisis will have the survival of the business as its main priority.
Differentiate between cost, expense and loss
To know how to manage your business expenses, you must first differentiate them, understanding the role of each one in management . Costs are linked to production, that is, that amount must be invested in some product or service. Expenses are linked to management and administration, always with the objective of providing support for the production area. Lastly, we have losses, which represent an abnormal event in which money is wasted.
What is variable and what is fixed?
After understanding what costs and expenses are, it is still necessary to classify them into two categories: variable and fixed. The difference between them is simple: the first changes according to sales results, while the second is an expense that remains the same, regardless of how much profit the company made in the period . Check out some examples:
Fixed cost: rent and salary;
Fixed expense: budget defined annually for marketing, for example;
Variable cost: raw material, labor and packaging;
Variable expense: commission and shipping.
Contribution margin
Once you've differentiated your expenses, it's time to put the numbers on paper:
Contribution Margin Infographic
"The contribution margin is a result that helps pay for what can break your company: fixed costs. These are the ones you have to control as much as possible," highlights José Renato.