Every entrepreneur started his business by the product, in what he knows and likes to do. In vocation. Went there, made and sold it! It didn't start by thinking about the cost.

The talented baker didn't think: "Now I'm going to produce a loaf of bread with the least overhead in town! The competition will see!" Quite the contrary... it is likely that to perfect the product he loves so much, he would have put ingredients so more elaborate and special that the costs would make the product unfeasible. And without ever knowing it...

Cost management is for all sizes of companies in all markets, except for monopolies or oligopolies whose pricing ability virtually "releases" them from this concern. However, even if small, from a certain production volume and with the company structure becoming bigger and more complex every day, cost management becomes vital. Main reasons to invest in cost management:

Efficiency: cost management is concerned with determining the real share of costs and with this it can detect inefficiency, waste, errors and failures, making costs and therefore prices stay where they should be: generating profits.

Allocation of indirect expenses: if the company has two or more products or services that are distinct from each other, the allocation of indirect costs and expenses is bound to become a problem. Many managers are unaware of the reality of effort consumption (expenditure) that each product demands and allocate indirect ones by criteria that distort the final cost of each product. The result: seemingly profitable products may actually be the company's biggest source of loss.

Pricing: How to price my product if I don't know my costs? How much to give discounts for larger volumes if I don't know the contribution margin per product or the behavior of the cost-volume-profit ratio of each product? Am I treating taxes properly for each material used, each final product, each destination (state or type of customer)?

Competition:efficient cost management allows you to practice lower prices than the competition without giving up profit.

Our many years of experience in the field, implementing costing tools in the most varied segments, shows that companies lose a lot of money for not applying good cost management practices.

Overly simplistic calculations overlook the impact the subject has on a very sensitive place: the cashier. Not pricing correctly, based on well-known and detailed costs, prevents the recovery of direct and indirect expenses, culminating in low profitability and even financial inability to honor commitments.

Cost management is much more than the maxim - of somewhat dubious taste! - which says "costs are like hair and nails: you always have to cut".

Yes, you have to take care that costs and expenses don't grow disorderly, it's true. However, every organization needs to know its costs well, which ones demand greater efforts, which ones bring a greater contribution margin, etc. and so on. Without that, cuts can become a nice shot in the foot...