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A direct cost is a business expenditure that is directly related to the cost of a product or service such as the cost of component parts and labor. Costs such as administrative overhead are considered indirect costs because they can't be directly related to a product or service.
The classification of direct costs varies by industry and company. For example, ecommerce companies often consider marketing costs as a direct cost. Industrial firms such as manufacturers typically view marketing costs as overhead. |
Type | | Definition | Costs that can be calculated on a per unit basis for product or service. | Value | In general, direct costs allow you to make better strategic decisions as compared with costs that are heaped into a general category of overhead. For example, knowing your customer acquisition costs for each sale is more useful than having an advertising spend that can't be accurately related to sales. | Related Concepts | | Next: Cost of Revenue
Business Costs
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