How does the MECE principle define costs?

The MECE principle defines costs as a component of the company's profits. It breaks down costs into two categories: Fixed costs and Variable costs. Fixed costs are expenses that do not change with the level of output, like rent or salaries. Variable costs, on the other hand, change with the level of output, like raw materials or direct labor.

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Using a math formula can work really well to break down a framework in a MECE way because math formulas are MECE by nature, the consultants say. For example, to calculate company profits, keep in mind that Profits = Revenue - Costs, where Revenue is Units sold and Price per unit and Costs is Fixed cost and Variable cost.

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McKinsey MECE Principle

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