Cost And Effect

Dollars And Sense

How should you use the results of a small-business cost survey? "Benchmark your company against the survey results, and see how you score in the various categories," suggests William Doescher, senior vice president at Dun & Bradstreet. Cost data could help you become the most efficient producer of your product or service.

That's a fine suggestion, but it's not that easy in practice. What's typical for one company isn't for another. For best results, you need competitive intelligence. That means finding out the spending patterns of your direct competitors. Then you can try to beat them at their own game. The problem? "Competitive information is hard to get," says Tom Gillis, a management consultant and author of Guts & Borrowed Money (Bard Press).

Comparative shopping, pumping vendors for information and simple observation will help some. You may also obtain good information from an industry association. For instance, many automotive trade groups have model financial statements describing what percentage of revenues average member firms actually spend on various costs, according to Gillis.

Another caveat: Even if the survey results are from the right industry, cost surveys will show different results depending on the age of the company. For instance, says Murray Low, director of entrepreneurship at Columbia University in New York City, a start-up company will spend less on fixed costs such as machinery and more on variable costs such as labor than an established firm.

One thing even the most general costs survey can do is alert you to the need for good record-keeping and cost accounting so you can identify your own costs. "If you got that one idea from this survey," says Doescher, "you would have spent your time wisely."

Contact Sources

Form You 3 Weight Loss Centers, 1233 N. Adams St., Tallahassee, FL 32303, (850) 222-2311

Tom Gillis, (713) 622-2818, tsgillis@ att.net

Penn Consulting, (412) 766-3311; http://www.penncon.com

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This article was originally published in the January 1998 print edition of Entrepreneur with the headline: Cost And Effect.

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