When you stop staring at the expense report and start staring at the activity that creates the expense, you stop being a victim of your costs. You become the manager of them.
Traditional budgets just add 5% to last year’s numbers. Driver-based budgeting asks: “If we increase sales by 20%, how many more customer service calls will that generate?” You can now predict costs before they happen.
If you don’t know what drives your costs, you will under-price your products. For a logistics company, if the cost driver is delivery stops (not miles driven), then a customer with 20 stops in one neighborhood costs way more than one with 1 stop across town. Price accordingly. cost driver
Have you ever looked at your monthly P&L statement and thought, “Revenue is up, so why is our profit margin shrinking?”
A cost driver is not an accounting buzzword. It is a . When you stop staring at the expense report
A is the unit of activity that causes a cost to change.
You dig into the expenses. Rent is flat. Salaries are steady. But somewhere, a line item labeled “miscellaneous operating costs” has doubled. Driver-based budgeting asks: “If we increase sales by
So, what’s your biggest cost driver this quarter? Go find it. Then go reduce it. Enjoyed this? Share it with a founder who just asked “where did all our cash go?”