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.
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?” When you stop staring at the expense report
A cost driver is not an accounting buzzword. It is a . For a logistics company, if the cost driver
What the Heck is a Cost Driver? (And Why It’s the Secret to Real Profitability)
A is the unit of activity that causes a cost to change.
| Industry | Cost | Cost Driver | | :--- | :--- | :--- | | Restaurant | Electricity bill | Number of covers (guests served) | | E-commerce | Shipping fees | Number of boxes shipped OR weight | | Hospital | Nursing staff | Patient days (total nights in beds) | | Law firm | Paralegal time | Number of documents reviewed | | Manufacturing | Machine maintenance | Machine hours run |