Smart in 60 seconds! Today: Direct costs.
New series in the "The Agency Blogger". From now on we explain the most important terms of agency controlling here on a regular basis: briefly, concisely and practically. Today: Direct costs
Direct costs are all costs which can be directly attributable to a payer: In agency business, these are usually the time and third-party costs for the individual customer projects. To be able to assign the respective third-party costs is still relatively simple: Freelancers, material costs, travel etc. for the respective jobs are usually obvious. It is more difficult when it comes to permanent employees who work on the project. To depict them or their salaries here properly, one usually requires agency software with time logging. After all, only a part of their salary can be recognized for project-related work they have done. The more people working on multiple clients, the more complex it becomes.
The determination of direct costs is essential to determine the profitability of the budget via the contribution margin. To disclose them, other factors must be included in the calculation. An essential element is overheads. More about these in the next instalment.