Cost Structure

A Cost Structure describes the composition, distribution, and behavior of all costs associated with operating a business. It explains how resources are consumed to create, deliver, market, and support products or services while providing insight into the organization's economic model and long-term profitability.

Costs are commonly classified as fixed or variable, direct or indirect, operating or capital, although additional classifications may be used depending on the industry and analytical objective. Understanding the Cost Structure requires more than identifying expenses. It involves evaluating how costs change as the organization grows, introduces new products, enters additional markets, or improves operational efficiency.

Different business models naturally produce different Cost Structures. Asset-intensive manufacturing organizations typically incur substantial fixed costs, while software businesses often experience relatively low marginal costs once products have been developed.