Should I be tracking the costs related to my products and services?

I often get asked by clients if they should be tracking the costs related to their different products and services. My answer to that is definitely.

The costs you need to be tracking are both your direct costs and your hidden costs. By tracking what your direct costs are in terms of receiving your product and selling your product or even providing your service, you’re able to see how much it costs you to do specific types of jobs or sell specific types of products. I recommend you split up both your income account and also your direct costs and hidden costs related to each product and service you provide.

Once you do this type of tracking you’re actually able to see what proportion of your income is sucked up by product or service costs, then administration costs.  You are also then able to see what you are left with to either:

  1. pay yourself; and/or
  2. run the rest of your business.

By splitting these costs you are now able to see real profitability without mixing up profitability from business operations and administration.

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