| 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 |
If you don’t know what your cost drivers are, you aren’t managing your business. You’re just reacting to it. cost driver
Want to lower costs? Don’t slash headcount. Reduce the driver. If purchase orders drive your accounting costs, stop creating a PO for every pack of sticky notes. Automate or batch the process. | Industry | Cost | Cost Driver |
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. Don’t slash headcount
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.