The most common questions about the costs of a company

The issue of costs generated by the company is one of the most controversial and forgotten by the entrepreneurial topics. Not everything should be seen in terms of revenue; also reducing expenses could represent the first step to increase the profitability of the business. Therefore, we found the most frequent questions about costs here:

costs of a company

What are the variable costs of my business?
They are those who depend on their volume of production, such as inputs, payment of electricity, water, telephone and fuel, income tax, and including payment to the sales force (which is basically does on realized commissions).

What are the fixed costs of my business?
Not depend on the production and sales of the company, but remain constant throughout the life of the business. Here we find the office rent, payment for administrative and other employees of the company, loan repayments, insurance and municipal permits.

What can I do to fixed costs do not end up ruining my budding business?
A bad budget that includes incurring too many fixed costs can lead to bankruptcy. For that not to happen (assuming we start the business with little capital), we can use some of these options:

  • Outsource production processes to save on labor.
  • Share office with another entrepreneur.
  • Outsourcing logistics and distribution of products.
  • Set a fixed wage employees, with extra bonuses for productivity and/or sales.
  • Put together a consistent advertising plan for economic growth of the business.

How do I know what is the true cost of my product or service?
The real profitability is achieved only find after subtracting variable costs from total revenue. Fixed costs remain sideways. In this simple mathematical operation is called contribution margin.

When will I stop losing money?
The beginnings of any business are always complicated. You see the money is not returned to the same extent that it goes either through fixed or variable costs. The exact moment that you stop losing money occur when sales volume equals the sum of fixed and variable costs. That is a point that is not lost or won, and is known in terms of finance as an economic balance.

What are fixed costs really unalterable?
Not at all. Although it sounds a bit contradictory as to be mentioned here, fixed costs are not as fixed as we think. If you increase productivity, maintaining lasting fixed costs (maximum capacity), a particular case happens, economically speaking: the fixed costs are reduced. The same phenomenon can occur with some variable costs, such as when bulk purchase of inputs is performed.