In this module we’re going to explore the viability of your business model, specifically looking at the cost structure. When looked at in conjunction with your revenue streams, it will give you an overall understanding of the profitability of your business.
In this module, you’ll explore:
- Different types of cost structures
- The key costs within your business
- Fixed and variable costs
- How to use costs to your advantage
Start by downloading and saving the workbook to your computer, to use throughout the module, capturing any key takeaways and completing the exercises at the end of each chapter.
What is a cost structure?
In this first chapter, we’ll start by looking at what a cost structure is, different approaches to cost and why it’s such a crucial element of building a viable and scalable business. Use your workbook to help you identify the costs within your business – and don’t forget to keep a note of any assumptions that you make so you can continue to test and validate these going forward.
Understanding your costs
Now that you’ve started to identify key costs within your business, one fundamental priority for every business owner is to then understand which costs are fixed and which costs are variable. In this chapter, we’re going to understand what constitutes a fixed cost or a variable cost and apply this to the costs you identified in the previous chapter.
How to use costs to your advantage
In the final chapter of this module, we’re going to look at how you can use costs to your advantage, first understanding the concept of breaking even and how economies of scale and scope could ultimately help increase the profitability of your business. We will also hear from some entrepreneurs about the cost challenges within their businesses and how they’ve worked to reduce these further.
Further Reading
- Smart savings for start-ups
- SME growth: when to spend
- SME Tools: eight ways to rein in business costs
- Managing cash flow: procurement
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