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Important Cost Structures

Innovation and Business Model


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Unit Video

Unit Summary

The two essential cost structure elements:
  • Fixed costs
  • Variable costs

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In this video, you will learn the 2 most important cost structures in your business.
Cost structure refers to all the costs that you incur to deliver on your business model. Keeping your costs under control is essential to maintain a healthy business.
2 Essential Cost Structure elements include:
  • Fixed Costs – which refer to all costs that you need to incur whether you sell or not. These could include factory, general administration staff, rent, management staff costs etc..
  • Variable Costs – which refer to costs that are associated with the sales of your products or services. The more you sell the more these costs would go up. Variable costs include things like the raw material for your products, or cost of consultants that you would etc..
When you are starting up a business keeping the fixed costs as low as possible is essential so that you don’t run out of cash too quickly before you start selling enough products and services to cover your costs.

Cutting prices or putting things on sale is not sustainable business strategy. The other side of it is that you can’t cut enough costs to save your way to prosperity. Howard Schultz