CTL: Apply Direct & Indirect Costs to Your Business

Apply What You Learned: Analyze Your Own Cost Structure

Understanding cost structure is important—but the real value comes from applying that knowledge to your own business.

Now that you’ve been through the Income|Outcome simulation, take the next step: look at how your organization’s costs behave in the real world.

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Task: Analyze Your Own Cost Structure

1. Identify Five Business Expenses

‍List five regular expenses in your department, team, or company.

Try to include a mix—some clearly tied to production, others that support general operations.List five regular expenses in your department, team, or company.

2. Classify Each as Direct or Indirect
Decide whether each expense is:

• Direct: Tied specifically to a product or service
• Indirect: Supports the business, but not tied to a specific product or service

Example: A restaurant’s food ingredients are direct costs, while its accounting software subscription is indirect.

3. Assess the Impact on Profitability
For each cost, consider:

• If you reduced or removed this cost, would it affect your ability to generate revenue?
• How would it change your pricing, capacity, or customer experience?

4. Compare to Your Simulation Decisions
Think back to how your team handled costs during the simulation:

• Did you focus on reducing direct or indirect costs?
• Did you weigh short-term savings against long-term impact?
• How does that approach compare to real decisions in your organization?

What About Semi-Variable Costs?

Not every cost fits neatly into “direct” or “indirect.” Many have both fixed and variable components—these are semi-variable costs.

Examples include:

• Utility bills
• Salaries with commission
• Maintenance costs tied to usage

📖 Read our post on semi-variable costs.

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Final Thought

You already know what you’re spending. The next step is knowing how it behaves.
Once you understand what drives each cost—and how much control you have—you can stop reacting and start managing.

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That’s it! Short, sweet, and hopefully useful.