Converting Fixed Costs to Variable Costs to Raise Prifits

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Converting Fixed Costs to Variable Costs to Raise Prifits

Matthew Mandell

08/06/2012 – 9:00 am

Payments

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What are you doing today to turn fixed costs into variable costs? The first company I started was as a DJ when I was 12 years old. Besides the upfront cost of equipment which had minimal (if any) repair cost, all recurring costs were variable. Looking back costs were roughly:
  • Labor
  • Purchasing Music
  • My Time
There were a few other costs to be very granular like gas (it was cheaper then) and paper for invoices and stationary, but it was minimal.

Back to Business School Lesson:

Fixed Cost:
A cost that has to be paid, even if you do no business or are on vacation for a month. (Rent for your office)
Variable Cost:
A cost that can change based on usage. (Electric or water bill for your office)  
The more costs that are directly related to the number of customers you have, the more profitable your business can become. The suggestion is not to never buy things or have no employees (unless that’s what you think is best for your goals) but it is to make sure each check you write earns it’s keep.
Many businesses do this with highly skilled labor already when they hire an attorney or accountant. How can this be applied to more areas of your business?
Few Ideas:
  • Writers
  • Graphic Designers
  • Phone Answering
  • Office Cleaning
  • Billing
  • Marketing
  • Deliveries
The list could be endless… it ties into where you add value in your customers lives. Anything not core to the business is a excellent place to start.
What are 3 costs you could convert over the next 30 days to variable costs?

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