Cost analysis: the lens that separates real margins from illusions
Theory and practice
There is a truth that invariably emerges when you get into a company’s numbers: many decisions are made without really knowing what they cost. Not because the data is missing, but because costs aren’t read, classified and interpreted correctly.
Cost analysis is not academic theory. It is everyday practice. And it is made up of clear definitions and very concrete examples.
An effective cost analysis is built on three fundamental levels
Fixed and variable costs
Fixed costs remain unchanged in the short term, regardless of activity volumes. Variable costs, on the other hand, change with production or sales.
A concrete example: a company has a turnover of €1,000,000. It decides to push sales and grows by 20%. To sustain the volumes it increases shifts, consumption, logistics and labour. Variable costs grow more than expected and some fixed costs “harden”. The result? Turnover goes up, but the margin goes down. Without this distinction, growth can backfire like a boomerang.
Direct and indirect costs
Direct costs can be attributed precisely to a specific product, service or activity. Indirect costs cannot be charged directly and must be allocated using objective, consistent criteria.
Example: a product looks very profitable because its direct costs are low. But it requires many hours of technical office time, after-sales support, complaint handling and complex logistics. If these indirect costs are allocated “by percentage” or “by feel”, the margin looks inflated. When you allocate them correctly, you discover that the product is not funding the company… it is draining it
Cost centres and profit centres
Cost centres are used to monitor where costs arise. Profit centres show where value is generated.
Example: two departments with the same turnover. The first generates positive margins, the second absorbs resources, time and attention. Without cost and profit centres, everything blurs together and appears to work. When you introduce them, it becomes clear who creates value and who lives off the others. And only then can you take targeted action.
Why invest seriously in cost analysis? To know which products, services or customers are genuinely profitable. To identify waste and inefficiencies before they become structural. To make operational decisions based on numbers, not perceptions. To avoid “phantom” margins that exist only in reports.
Many companies say they know their costs. In reality, they only know an average. And it’s in averages that the most expensive mistakes hide.
If you want to turn cost analysis into a practical tool for awareness and growth, the first step is to approach it with method, without shortcuts.