For a company, controlling the amount of costs is essential. In a company, a distinction is generally made between fixed costs and variable costs. Variable costs move with the turnover, fixed costs remain (almost) stable. How can these costs be mapped out and what more specific cost types are there?
Turnover and costs
When a company wants to generate turnover, various costs must of course be taken into account. A retailer who wants to sell a product will need a store to buy or rent. Stock must be purchased and staff must be present to provide advice. The various costs that a company incurs can be divided into variable costs and fixed costs.
Variable cost
Variable costs are costs that increase when sales increase and decrease when sales decrease. A webshop that sells toys online will have, among other things, purchasing, logistics costs and return costs as variable costs. After all, when the turnover doubles, twice as many products will have to be purchased, the costs for shipping the products will increase and more products will also be returned, which leads to return costs. Variable costs are of three types.
Proportionally variable costs
These are variable costs that increase in proportion to sales / production. When sales increase by 20%, the relevant variable costs also increase by 20%. An example is the shipment of the products. When to send a package? 4 costs, and the sale of the webshop increases from 100 to 150 products per day, then the shipping costs increase of ?? 400 to ?? 600 per day. Both the turnover and the variable costs will then increase by 50%.
Progressive variable costs
With progressively variable costs, the costs increase in percentage terms faster than the turnover increases. In the above example, it may be that due to the increase in the number of products sold, the logistics service provider also starts working for the webshop in the evening to get the products to the customer on time. Because the logistics service provider pays more wages to its staff in the evening and passes these extra costs on to the webshop, the costs of a shipment of ?? 4 to ?? 4.50. When the turnover increases from 100 to 150 products, and the logistics service provider charges a rate of ?? for the extra 50 products. 4.50 then the costs increase by ?? 225 (56%), while sales are up 50%. Relatively speaking, the margin then decreases.
Decreasingly variable costs
This is the most desirable shape. The variable costs increase less rapidly than the turnover. When the webshop has 100 products for ?? 10 buys from the manufacturer, it costs the manufacturer money to get the products to the webshop. When the webshop purchases 150 products, and the manufacturer can send these 50 extra products without this costing him extra money (for example because there is still space in the delivery van), an extra discount can be obtained. The supplier then delivers the products for example ?? 9 instead of ?? 10. When the sales price is kept the same, the 50% increase in sales leads to only a 35% increase in purchasing costs. This increases the profit margin.
With an increase in turnover, it usually happens that the variable costs per product decrease. A company will have more bargaining power with suppliers and logistics service providers and can leverage its scale. This is not always the case. The danger arises that when an organization continues to grow, the growth of the internal organization means that work is less efficient (more consultation is needed, processes become longer, people are busy with the same work).
Constant costs
Constant costs are costs that do not increase or decrease when the turnover or sales increase or decrease. An example of this is the rental of a building or the payment of the financing of a machine. A shop that for ?? 2,000 per month will always be the ?? 2,000 per month, whether (within the same space and hours) 100 or 200 products are sold per day. The same goes for a machine with a purchase value of ?? 50,000 to be repaid in 5 years. If the purchase of the machine is financed with a loan of ?? 50,000, the company pays interest costs whether the machine is used or not.
There is often a limit to constant costs. A store with a certain rental amount per month cannot handle an unlimited number of customers and an unlimited stock cannot be stored. When the organization grows and more stocks are needed, a second branch will have to be opened, for example. This means that new fixed costs arise.
