What About When Costs and Revenues Are Interdependent?

In the prior post, it was implicitly assumed that costs and revenues are independent. This is how you can develop costs and then determine needed revenues.  What about when costs and revenues are interdependent?

It's not uncommon for costs and revenues to be interdependent.  While discussions like those in the prior two posts are easier with an assumption of interdependence, this is not often the case.  Some of the links mentioned in the prior post did touch on this issue.  For example, one link raised issues like insufficient inventory or sales support staff when sales exceed expectations.

If your business has a fixed monthly payment for a space, such as a monthly lease, then this cost is clearly known.  However, what if you rent space as the need arises? What if you're able to have all your costs as flexible - variable - as this?  Here then, costs and revenues are interdependent.  Thankfully, if you have very little lead time between incurring a cost and meeting a demand for your product or service, there's little problem with this type of interdependence.

However, when this lead time lengthens, for example, with advertising costs, staffing needs, space rental, it becomes more difficult to simplify the budgeting problem by working with costs.  In these situations, costs and revenues are linked.

One other implication of this kind of linkage is that to simplify it as much as possible by keeping costs as variable as possible with the shortest lead times possible before needing to commit to a cost.