Cost models

Cost models are the overly-complicated board game of marketing where businesses forecast pricing strategies, expenses, and profitability. Imagine trying to predict the weather, but instead of raindrops, you're calculating dollars and cents to make sure you're not just throwing money like confetti at a parade. In short, they're the necessary evil that determines if your brilliant idea will make you a fortune or just a very expensive hobby.

Cost models are analytical frameworks used to estimate, allocate, and manage the costs associated with the production of goods or delivery of services. They help businesses in forecasting expenses, setting budgets, pricing strategies, and evaluating profitability by assessing both fixed and variable costs throughout the supply chain. Common types of cost models include activity-based costing, which allocates overhead costs based on activities that drive costs, and job order costing, often used in customized manufacturing, where costs are calculated on a per-job basis. By providing insights into cost structures, these models support informed decision-making and optimization of resource allocation for enhanced financial performance.