It is important to identify and measure all of the costs in producing your products or delivering your company’s services. Understanding costs is critical to profitability. Without understanding all costs, it is not possible to create the best pricing strategy that will recover all costs and allow room for a profit when considered across all products or services.
Often, companies only consider the direct costs of production or service delivery. However other costs such as the “use” of specialized machinery, specialized labor skills or allocation of scarce space that could be used for other uses are just as real.