Strategic versus non-strategic costs

It is important to know the distribution between a company’s strategic and non-strategic costs in business.

Strategic Costs

Strategic costs are expenses that generate new business for your company and improve your bottom line. These are costs for sales, marketing, and business development.

Non-strategic Costs

Non-strategic costs are all other costs in your business. These are operating expenses that you use to maintain the business. Operating costs can be administrative costs for employees, rent, accountant, lawyer, computer, production costs, etc.

Are you spending enough on strategic costs?

The more money you manage to spend on strategic costs – while saving on non-strategic costs – the greater profit you can create in your business.

If you spend more money on your long-term business than your competitors, then you have a good opportunity to win more business. The increased budget requires you to have control over how much money your company spends on strategic versus non-strategic costs.

You can probably get a handle on this quite quickly.

Look in the accounts and note all your strategic costs, and compare this against your total expenses. Are you spending 100,000 kroner/year on sales and marketing, while your total annual expenses are 8,000,000 kroner – and the profit is 200,000 kr/year?

Then it might be time to increase your strategic costs and cut non-strategic costs.

Strategic Costs Build Businesses

It’s hard to keep non-strategic expenses down.

Costs pop up like a ball in the pool. Therefore, it is a continuous job to remove operating costs, and it must be repeated every time a decision is made about new costs in the company.

It also requires a steel gaze to keep your focus on strategic costs. Strategic costs like developing new business areas can only add new business to the company in the future.

Conclusion

If you invest your strategic costs carefully, and spend more money (smarter) than your competitors, you will dominate your market. The more money you save on your non-strategic costs, you can invest in your strategic work.

Your profit should ideally increase if you manage to increase your strategic costs, while simultaneously cutting your non-strategic costs.