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Your Cost Structure Lists all Business Model Costs

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Frequently Asking Questions

  • Which business model costs matter most?
  • Most expensive Key Resources?
  • Which Key Activities cost the most?

What is Cost Structure?

This building block lists the main business model costs. Value proposition, customer retention, and revenue generation cost money. Key Resources, Activities, and Key Partnerships make such costs easy to calculate. However, some business models prioritize cost. For example, “no frills” airlines base their business models on low-cost structures.

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Every business model should reduce costs. Some business models value low-cost structures more than others. Thus, cost-driven and value-driven business model cost structures (many fall in between) can be useful:

Cost-driven

Cost-driven business models minimize expenses. Low-price Value Propositions, maximum automation, and extensive outsourcing create and maintain the leanest Cost Structure. Southwest, easyJet, and Ryanair operate cost-effectively.

Value-driven

Some companies prioritize value creation over business model cost. Value-driven business models have premium value propositions and personalized service. Luxury hotels are in this category.

Expense Structure

Cost Structures can have:

Scale economies

Cost savings as a company grows. Lower bulk purchase rates benefit larger companies. This and other factors lower the average cost per unit as output rises.

Scope economies

Economies of scale that a business enjoys. In a large company, marketing and distribution channels may support multiple products.

Fixed cost

Constant costs regardless of output. Rents, wages, and manufacturing facilities are examples. Manufacturing companies have high fixed costs.

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Variable cost

Production-based costs. Music festivals have high variable costs.

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