In this chapter we will focus on costs, the expenses required to operate your business.
Some costs can be obvious, such as rent, employees or materials, while other costs are less obvious, such as business registration fees and taxes.
Your total costs can be calculated by adding up the Key Activities, Key Partners & the Resources.
When you start your business it is important to know what the largest cost item is. Costs are structured under two types in business as fixed costs and variable costs. We will explain these costs in the finance course. For now, just think of fixed costs as something you need to pay every month no matter your sales, and variable costs as expenses that depend on how much your produce.
Now, just write your cost items. Please be aware that your costs is different from resources. This sounds a bit complicated but let me give you an example:
I listed some of the most common resources previously, such as raw products, a vehicle and my workers. These resources have certain costs, such as the costs for me to buy seeds to grow pumpkins, leasing fee for a truck or car that can transport my products to the market, or salaries to pay for the workers.
My business’ initial costs were Activity costs AND Resource costs. At that time, I did not have any partners so I did not yet have any partnership costs.
So in calculating my costs, I had to take into account the following:
1) Registration fee for my business
2) Pumpkin seeds, sugar and spices, jars, lids, and packages
3) One employee to help me
4) Electricity, water and gas
5) Transportation to the market
Right now I will not go into the detail of how to calculate these costs since it will be covered in the Finance module. However, you should be aware of the costs items in order to calculate them later.
Take away: please check in your canvas what your costs items are and make sure you do not miss any important item. If required deliver a sample of your product or service to see every single cost item.