10 – Cost Structure
A look at the business model from the product manager's point of view
CANVAS 13 - Great guide on the business model, from the product manager's point of view
1 – Customer Problem
2 – Customer Segments
3 – Value Propositions
Value Proposition Formulation Map
4 – Customer Relationships
5 – Channels
6 – Revenue Streams
7 – Key Activities
8 – Key Resources
9 – Key Partners
You are here ➔ 10 – Cost Structure
11 – Eco-Social Costs
12 – Eco-Social Benefits
13 – KPI (Key Performance Indicators)
The cost structure component includes all the expenses necessary for your business to operate and sell your products or services. In the context of the IT business, for example, the main expenses are usually user acquisition (known as "Customer Acquisition Cost") since marginal costs are typically minimal here. However, in other industries, such as the automotive industry, costs will also include production expenses. Even if acquiring a customer is relatively cheap, selling them a car at a low price is not feasible due to high production costs.
The cost structure refers to the description of those elements of your business model that generate the highest expenses. These can be expenses related to distribution, value proposition, or user support. It is important to understand that all these elements are interconnected, and if the connection between parts of your business model is lost, it may indicate a problem. When reviewing and analyzing your business model, always consider the interconnection of its various elements.
You should ask yourself the following questions: What are the most expensive elements of our business model? Which of our key resources are the most costly? Which of our key activities incur the highest costs?
It is also important to determine what your business is more oriented towards: cost minimization (with a minimal cost structure, low-value proposition price, maximum automation, and extensive use of outsourcing) or value creation (with a high-quality value proposition).
Costs can be divided into fixed, such as salaries, rent payments, and utilities, and variable. There may also be costs that decrease with the scale of the business (economies of scale) or costs that decrease when the same activity is used in several business areas (economies of scope).
Types of partnerships for cost restructuring
- Cooperative competition with competitors: This can be a partnership with those traditionally considered competitors to achieve a common goal.
- Alliance with key suppliers: Collaboration with suppliers to ensure reliability and stability of supplies.
- Joint ventures for business launch and effort distribution: This may involve pooling resources and efforts to create a new venture.
- Financial partners: This can include cooperation with banks, investors, or other financial institutions to secure necessary funding.
- Government agencies: In some cases, collaboration with government agencies can be beneficial, for example, for obtaining licenses, permits, or support in the form of grants and subsidies.