Your cost structure

I was asked this question by my senior management team multiple time. The question is – how can we reduce our product cost per unit? They also put pressure on me to increase the offer price in order to reduce our cost per unit. The problem is it is not that simple.

Everyone knows that in any cost structure there are fixed cost and variable cost. In our case, the fixed cost contribute more than 55% of the total cost. It means we have inefficiency in our operations. By increasing the offer price, it means we pass our inefficiency to customers. As we are in a hospitality industry, customers can always buy holiday packages somewhere else. There are a lot of cheaper deals out there in the market.

The only 2 ways to reduce our cost per unit in this situation is 1) reduce our operational costs (e.g. reduce the size of the call centre) or 2) sell more packages even though it means we have to reduce the price (to drive more quantity to dilute the fixed cost).

It looks to be an interesting year answering the same question.

Apivut

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