Why Variabilizing your Cost structure is a Right-Now Strategy

September 30, 2020

Can you scale up or down as fast as you need to?

In a recession, fixed costs are a liability. The more you have, the more revenue is needed to break even—and the harder it is to rapidly scale up or down to adapt.

Variabilizing your cost structure can significantly increase your capital efficiency and financial flexibility.

How? Some steps are familiar territory—eliminating low-value activities and overhead. But some go a step beyond and actually convert fixed costs into variable ones. This can involve anything from outsourcing and offshoring to new contract financing agreements to operating model changes.

Are you taking the right steps to variable your costs? Here’s a quick checklist to make sure your organization is on track:

► Establish internal benchmarks to pinpoint low- or no-value activities.

► Optimize your staffing by reducing the layers between management and the client.

► Map out costs distribution by market, product/service line and customer vertical.

► Leverage the 80/20 principle to reallocate resources away from lower-value activities to higher ones.

Reimagine your biggest fixed costs—negotiate variable payment terms with suppliers, outsource noncore business functions or shift from asset ownership to renting for access. 

Click below to learn how a $140 million transportation company tripled EBITDA in 24 months by variabilizing cost structure elements as part of a productivity overhaul.