What is Cost Management?
Cost management is a process through which businesses plan and control all the expenses associated with running the company. An e-commerce company collects and analyzes cost information for better finance management and generates long-term profit.
Significance of Cost Management in E-commerce
Cost management technique helps e-commerce businesses lower their expenses and gain operational efficiency. Here is why cost management is important for e-commerce businesses:
- Cost management techniques allow businesses to generate long-term profit and achieve financial goals.
- Implementing a functioning cost management structure is the first step toward proper resource planning. A reasonable cost management structure can help businesses plan their projects more efficiently.
Prerequisites of Cost Management and How It Works
Here are some things to remember while implementing cost management:
- Resource planning – It helps to plan, allocate and schedule the resources looking specifically at cost as a factor.
- Cost estimation – It indicates cost associated with each resource required at scheduled activities. It predicts the cost of the entire activity within a defined scope.
- Cost budgeting – Cost estimation leans to cost budgeting. It represents the activity’s budget to make informed decisions about resource allocation.
- Cost control – It refers to a financial plan that indicates the expected cost of an e-commerce activity. To implement cost control, companies should be aware of the following factors:
- Original budget
- Predicted costs
- Actual costs
- Approved costs
- Committed costs
Use Case with Cost Management
Suppose a company running a pottery business is losing revenue. To increase sales and increase profit, they can implement cost management. It will allow them to plan and use their resources in a better way that saves costs and helps increase profit.