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.
Next: Cost of Revenue
Costs that can be calculated on a per unit basis for product or service.
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.
This is the complete list of articles we have written about business costs.
If you enjoyed this page, please consider bookmarking Simplicable.
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.