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The MVP and Your Cost Structure
Your Minimum Viable Product (MVP) is your smart plan for the beginning of your project. Think of it as:
- Your first cool creation
- The basic version of your product that solves a big problem
- Something to test with users and investors before you build more
Even at the MVP stage, you need to break down your costs to understand how the full project will work.
Three Types of Costs for Your MVP
1. Cost of Goods Sold (COGS) — Direct Costs
Money spent directly to make your product:
- Materials, ingredients, components
- Direct labour
2. Operating Expenses — Indirect Costs
Day-to-day costs of running the business:
- Rent, salaries, advertising
- Marketing and utilities
3. Capital Expenditures — One-Time Startup Costs
What you pay once to get the business off the ground:
- Special equipment
- Website, software setup
Fixed Costs vs. Variable Costs
Costs can also be classified as:
| Type | Definition | Examples |
|---|---|---|
| Fixed costs | Stay the same no matter how much you produce or sell | Rent, employee salaries |
| Variable costs | Change with your business activity | Materials, shipping fees |
| One-time costs | Paid once at startup | Equipment, legal fees, marketing campaign setup |
Fixed costs stay the same no matter how much you produce or sell.
Variable costs change with your business activity.
After You Launch Your MVP
Once you've launched your MVP, you'll revisit your cost structure. This time, you'll make changes based on what you actually learned:
- Which costs were higher than expected?
- Which costs can be reduced?
- What new costs appeared that you didn't anticipate?
A cost structure that fits your business model perfectly is a key ingredient for success. Building it carefully — and updating it as you learn — is how great entrepreneurs manage their finances.