Successful entrepreneurs are careful with their money, and control their costs at all times. They practice frugality in every business activity, and are continually looking for ways to reduce the costs of operation.

Exact Costs
It is essential that you know the exact cost of every product or service that you sell. You can earn profit by selling a product at a price that is greater than the total cost of producing it. Because of poor cost control, many companies lose money on many products they sell. Ongoing cost analysis is a key responsibility of the entrepreneur.

The Law of Increasing Returns
The Law of Increasing Returns states that in many cases, the more of a product or service that you produce, the lower is the cost of each item.

The Law of Decreasing Returns
The Law of Decreasing Returns states that with some products, beyond a certain level of sales, you earn less profit with each item you sell because the costs increase per item.

The Law of Marginal Return
The Law of Marginal Return says that the ideal business arrangement is to produce and sell exactly the right quantity of products to earn the highest possible profit.

Different Costs
There are several different kinds of costs that must be included in determining your total costs. The first cost that must be understood is fixed cost. Fixed Costs are costs such as rent, salaries and utilities that you must pay whether you make any sales at all.

Variable Costs
These are costs that you incur each time you make a sale, including raw materials, cost of goods sold, sales commissions and shipping.

Semi-Variable Costs
These are costs that are partially fixed and partially variable, such as labor costs, utility costs, and advertising. These costs increase or decrease with sales and business activities, but not in an exact ratio.

Sunk Costs
This is the money that is gone forever and cannot be retrieved.

Opportunity Costs
This is the amount of money that you could earn if you invested in another product, service or activity.

 

-Brian Tracy