Reducing Variable Costs
Especially in a manufacturing business, the variable cost of parts, resources and energy etc are likely to be a substantial part of your overall costs. This Profit Savvy Menu is a collection of distilled business wisdom relating to managing and reducing these costs.
Variable costs are those that are directly tied to your level of production. If you produce more of an item, more inputs are required. If you produce less, you will have less variable costs. They might be physical inputs to production, goods purchased at wholesale for retail resale or services purchased from others and sold by you on a commission basis.
They are also often referred to as "Cost of Goods Sold"
By and large, you can't remove a variable cost because it is, by definition, a necessary part of your production system otherwise it would not be there but you can often reduce them.
This is a collection of short topics relating to variable cost reduction. Its purpose is to raise possibilities and processes in your mind to assist you with your management of this class of costs. Labour is not really a variable cost (unless you have a lot of piece workers) so this material will not focus on reducing labour costs
Read this if: you have substantial variable costs in your operation. The more you have and/or the larger they are as a proportion of your sales income, the more opportunity you will have to reduce them. .
Related to: 80/20 Rule, accounts payable
Degree of Difficulty: Yellow (entry level) Belt