Jasz
VIP Contributor
The best way to deal with high cost of material as a business so you don't make loss, but reasonable gain. You should know your current costs. You need to know what your direct costs are as well as any indirect costs associated with them. The following are examples of common indirect costs:
Materials and supplies: These include everything from screws and bolts to paper clips and staples.
Labor: This includes both your employees' salaries and the cost of their benefits package (e.g., health insurance).
Overhead: This includes such things as rent, utilities, advertising, office expenses and depreciation on equipment.
The key thing about indirect costs is that they can often be reduced by eliminating one or more of the above items. For instance, if you have three people working on your project compared to just one, then you will save money by hiring more people at lower salaries rather than paying for more expensive contractors who do the same work (e.g., 3 guys vs 1 guy). You'll also want to look at how much money you lose when something breaks down or breaks down unexpectedly because it was not properly maintained or repaired in the first place. Also buy in bulk and use alternative materials or methods (such as recycling) that are more affordable than those used in traditional manufacturing.
Materials and supplies: These include everything from screws and bolts to paper clips and staples.
Labor: This includes both your employees' salaries and the cost of their benefits package (e.g., health insurance).
Overhead: This includes such things as rent, utilities, advertising, office expenses and depreciation on equipment.
The key thing about indirect costs is that they can often be reduced by eliminating one or more of the above items. For instance, if you have three people working on your project compared to just one, then you will save money by hiring more people at lower salaries rather than paying for more expensive contractors who do the same work (e.g., 3 guys vs 1 guy). You'll also want to look at how much money you lose when something breaks down or breaks down unexpectedly because it was not properly maintained or repaired in the first place. Also buy in bulk and use alternative materials or methods (such as recycling) that are more affordable than those used in traditional manufacturing.