Cost Driver

A cost driver is any factor that directly causes a change in the cost of an activity within a business. It’s like a trigger that increases or decreases expenses. Imagine cost drivers as the dials on a machine – adjusting them impacts the overall cost. Examples include production volume (more units means higher costs), number of customer interactions (more calls = more support staff needed), or even the complexity of a product design (more features often require more resources to produce). Identifying and managing cost drivers helps businesses optimize spending and maximize profitability.