Are you intending to own a business? If yes, you need to understand what cost structure business model canvas is. Are you curious? Let’s read this article to get the information about cost structure business model

What Is the Cost Structure In The Business Model Canvas?

What is business model canvas certification? So a business model canvas is a cost structure business model that describes how much money that business might occur for operations. The operation includes the infrastructure, employees, cost of all business activities.

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Business Model Cost Structure

What is a cost structure example? The cost structure startup describes all costs that occur when setting up and growing up a business. Most businesses fail in the first 3 years because the business owner failed to understand the cost, profit, revenue and others when running a business. When reviewing the cost structure, business owner need to remember where the main costs will be:

  • Key Activities.
  • Key Partnerships.
  • Customer Relationships.
  • Channels.
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Key Questions To Ask

When you are setting up and running a software business model canvas, you need to do a market research and analysis of your business model. To make market research easier, you can prepare several questions to help you. Here is an example for you.

  • What are the fundamental costs derived from my business canvas?
  • Which part of your business represents a significant expense to the business?
  • What activities represent a significant expense to the business model canvas?
  • How do your business activities drive costs?
  • Are all your business activities matched to the Value Propositions for your business?
  • By finding out the different permutations of your business model, do the costs remain fixed or become variable?
  • Is your business model canvas more value-driven or cost-driven?

What Are The Different Types Of Cost Structure?

There are two types of cos structure such as:

  • Cost driven – The structure that helps to approach concentrates on reducing costs as much as possible that can be done via outsourcing or automating.
  • Value Driven – The structure that focus on maximizing the business worth by focusing on the personalized and service and focuses on minimizing Customer Pains and increasing their Gains.

Characteristics Of Cost Structures

There are several types of cost characteristics structure. Each cost depends on your business characteristics. Here are the characteristics of cost structures.

Fixed Costs

Fixed cost means the fixed percentage of your total cost and usually the cost percentage is stable. The examples of fixed costs are Amortization, Depreciation, Insurance, Interest expense, Property taxes, Rent, Salaries, and Utilities.

Variable Costs

Another cost type is variable cost. Thus variable cost means the cost fluctuates or keeps changing depending on the number of goods or services that are produced by a business. This cost includes things like  the shipping costs, web hosting servers and product raw materials.

Here are the examples of variable costs, all in a production setting:

  • Direct materials – The variable cost of all business which are the raw materials that go into a product.
  • Commissions/Affiliate payments – An additional compensation a company gives to its employees or affiliates.
  • Shipping Costs – costs are variable in the sense that they tend to change with the production and sales volume that occurs when moving the products or materials from one place to another.

Economies Of Scale

There is an economies of scope in the business cost structure. Economies of structure means the savings that are generated when the cost of producing a range of products together is cheaper than manufacturing them individually. 

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Economies Of Scope

Economies of scope is the cost reduction that happens when a business invests in multiple markets or a larger scope of operations. When a company opts to increase the number of goods it produces, then the average cost of production decreases.

Economies of scope will be based on product diversification that are only achieved if the different products have common processes or share the use of some resource. Here are the advantages of economies of scope for the business:

  • A great deal of flexibility in the design and mix of the product.
  • Increased response rate.
  • Decreased response time to the change of market-driven.
  • Repeatable process with a higher degree of control over their execution.
  • Reduce costs because wastage is minimized in this particular business model.
  • Get an accurate predict changes and cycles Organizations.
  • More efficient software and hardware utilized.
  • Low risk associated with a company which sells multiple products, or targets multiple markets or does both. 

Contingency Costs

There is also a contingency cost. Contingency cost is an unexpected budget that many business owners underestimate which is a mistake. You will never know what things might happen in the future. That’s to anticipate any bad thing, you need to calculate and allow for an overall contingency percentage in your budgeting. Typically 10% in budgeting is for contingency costs.

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How To Do Some Research On Cost Structure

When you want to create and set up your own business, you need to determine what business you want to run, what product you want to offer, who are your target audiences and many more. As you know each business has their competitors like same partners, products, target audience, activities and others. That’s why you need to do market research first before determining your business.

Don’t forget to campaign and promote your business after you set it up. You can offer discounts that can attract buyers and increase your sales. By doing market research, you can minimize any risks that might occur in your business and help your business succeed.

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Business model canvas is a cost structure business model that describes how much money that business might occur for operations. There is also a contingency cost that you need to include in your business budget that helps you to prepare for unexpected things that happen in your business. Before you set up a business, it is better to do market research first to help you determine the business you want to set up and run.

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