Direct spend is the total amount of money that a company spends on goods and services in a given period. This includes both the cost of materials and the cost of labour. Direct spend does not include indirect costs, such as overhead or marketing expenses.
Direct spend is a key metric for companies to track, as it can be used to measure the efficiency of operations and identify areas where cost savings can be achieved. For example, if a company’s direct spend is increasing but its sales are not, this could indicate that the company is overspending on materials or labour. Alternatively, if a company’s direct spend is decreasing but its sales are increasing, this could indicate that the company is becoming more efficient in its use of resources.
Direct spend is also a key input into financial models such as activity-based costing (ABC) and life-cycle costing (LCC). These models help companies understand the full cost of their products or services, and can be used to make decisions about pricing, production, and other factors.