Private cost information can be difficult to determine, however, these costs can really add up in business. But if you understand how to calculate what private cost your business harbors, you will be in a better position to reduce your private cost on the individual and corporate level. A private cost is the cost of a good or service production input, such as labor, material and capital. These factors may appear to be normal, but from the perspective of your customer, private cost information is critical during hard economic times.

Private cost information can turn your customers away and decrease your profit line in many ways. As pricing information is readily available on the Internet, your customers can access the real cost to produce the same good or service that you are selling. If the customer finds a company that produces the same or similar product or service, the consumer will likely go with the company that has the lowest private costs and selling price. You can counter this by:

1. Hiring a private cost expert.

2. Determining your firm's marginal private cost.

3. Assessing your company's private cost information to seek ways to reduce the overhead.

Action Steps
The best contacts and resources to help you get it done

Get private cost advice

There are numerous online sources that offer advice about private cost information. However, only a few of these sites provide accurate and real information.

I recommend: Booz Allen Hamilton is a leading source for private cost information and a good place to seek private cost advice. Alliance Cost Containment is another excellent source for private cost accounting information.

Hire a consultant for private cost assessment

Private cost assessment is very complex, so you may not want to go it alone. However, before hiring a consultant for private cost determinations, be sure to examine the consultant's background. Private costs can be subtle and not readily ascertained. Private cost consulting is not a straightforward practice, and the consultant must have a deep understanding of your business and of the industry in which you produce.

I recommend: Private cost consultants who are well-versed in all areas of private cost accounting can be found at Compass Lexecon. The Glosten Associates is a good place to get top private cost consultants for the marine industry.

Assess your private cost information

If you decide that you cannot afford external help in managing your private costs, consider assessing them on your own. Measuring your private cost information is the only way to reduce your overhead and thus your pricing schedule.

I recommend: There are several online sources to help you to learn ways to reduce your private costs. Palisade offers a free download trial of decision and cost assessment software. AcornSystems is another great company that offers private cost assessment tools and pertinent information.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The assessment of your private cost information can be startling at first. However, over time this knowledge can help you reduce your business expenses greatly. One good skill to brush up on is that of negotiation. After finding ways to reduce your private costs, you may want to negotiate the terms of your existing supplier contracts to get special deals on terms and payment schedules. For example, you can save money by purchasing your material on an annual basis, so be sure to negotiate the contract to get optimal savings by purchasing supplies annually, but still maintain your regular delivery timetable.