What the Heck is a Cost Driver? (And Why It’s the Secret to Real Profitability)
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. cost driver
If you don’t know what your cost drivers are, you aren’t managing your business. You’re just reacting to it. What the Heck is a Cost Driver
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 your cost drivers
| 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 try to manage the cost (salaries) without managing the driver (tickets), you will always be behind.