Definition:
Activity-based cost is a cost accounting system that unites actual costs to direct performance and the value of activities. Costs are not allocated based on a formula, but are drawn up from specific activities.
Índice de contenidos
Origin of the term
It is a concept that is also known as ABC, for the acronym in English of Activity Based Costing, and that was created in the mid-80s by Cooper Robin and Kaplan Robert.
In the ABC activity-based cost, the products and services of a company’s productive activity are grouped into cost centers that form a value sequence. The objective is to discover the activities that generate costs to minimize everything that does not add value. To do this, we must start from the premise that products consume activities and activities resources (costs). These activities form the processes necessary to achieve the product, so it will be necessary to analyze both the activities and the processes.
Examples of activity-based cost
Some examples of activities within a company are managing suppliers, receiving goods or issuing invoices, and among the processes we would highlight purchasing, sales, digital marketing, finance, personnel, etc.
It is a system especially suitable for small and medium-sized companies, in which the manager is forced to change the simple collection of data for its analysis to be able to face high competition.
Frequently asked questions about Activity-Based Cost
What does Activity-Based Cost mean in digital marketing?
Activity-Based Cost refers to the concept described in this glossary entry: Definition: Activity-based cost is a cost accounting system that unites actual costs to direct performance and the value of activities. Costs are not allocated based on a formula, but are drawn up from specific activities. It gives teams a shared vocabulary for analysing digital projects.
When should teams pay attention to Activity-Based Cost?
Teams should review Activity-Based Cost when it affects acquisition, measurement, user experience, content, automation or campaign performance. The important step is to connect the definition with a real decision.
How is Activity-Based Cost used in a digital strategy?
Activity-Based Cost is used by translating the concept into practical checks: where it appears in the funnel, which data or channel is involved and whether it needs optimisation, monitoring or documentation.
What is a common mistake when interpreting Activity-Based Cost?
A common mistake is using Activity-Based Cost too broadly. It is better to verify the context, the tool or the metric involved before making strategic or technical conclusions.