Business Models 101: Cost Structure
In this part we will discuss the Cost Structure, which includes
everything (people, services, material, tax,...) that drains money out of
your company.
I have to repeat it on every page but starting something on your own, creating value for you, your family and
the world is a totally recommendable thing to do. You want to create your
company. This is GREAT. The world has been made by
people like you. Entrepreneurs. Self-Made Men, Creators, Builders people
that believed an obstacle is just another great challenge to overcome, to
solve and put behind them as an achievement.
The Cost Structure
Costs are the part you do not like to have in a company.
Having no cost is always better. But this is impossible. Producing
something will always cost, even the electricity to light your room, the
internet service provider to promote your products, etc...
Under cost
structure you have to list all the items that are draining your company from
its cash. These costs have to be minimized at all "cost".
But do not do the mistake of trying to save where it is not necessary
or opposite: save where it is necessary.
For example, let's say your cupcake factory
start making money and you need to fill you the tax return. If this takes
you too much time, then hire an accountant to make it for you. You should
use the rule of thumb that is: every work that takes me away from creating
value and that takes more than 5% of my time, should be subcontracted.
Example: you work 60 hrs. in a week, which is a lot, then
you should not spend more than 3 hours on stuff that is not essential,
because there are other essential things in your life currently. And resting
a bit is also very important.
Trying to do
something yourself instead of using someone else or subcontracting lets you focus
on the important actions you have to do for your company.
Here are the questions you have to ask yourself
about the Cost Structure:
Which resources are costing the most? Can you save here or
not?
Which activity is costing the company money? Is this an
essential activity or not?
How is our
cost structure built? What are the repartition (fixed, variable,
franchise cost, etc…)?
What is costing you the most, how useful is it to your business?
Are the revenues higher than the
costs? Hopefully so, but may be at the beginning you still are in the red
because you need more sales to make break even.
Can investments be paid back? Look at this carefully because
banks and investors are usually not lenient and nice and also have no
patience.
Typical costs are:
-
Equipment,
-
wages
-
salaries
-
taxes
-
consumables (ingredients, packaging, ....)
-
transportion
-
building
-
uniform,
gear
-
cleaning equipment
- vehicles
Previous: Key Partners
Next: the long term goal,
mission, strategy
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excel business model canvas Template from here.
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