Conversion cost usage

Conversion cost is the expense related to changing something from one state of being to another. Isolating conversion costs is handy because it helps in the decision process of at what step of development an asset should be acquired. For example:

- When deciding how to increase sales, it's important to differentiate the cost of getting existing customers to buy more and/or more often, compared to the cost of converting a prospect into a new customer.

- When acquiring components used in the manufacturing process, should the elements be brought in and integrated into the process as raw materials, or should they be acquired as components that are assembled by an intermediate vendor.

With so many acquisition choices available today, understanding the conversion process is critical to maximizing pricing competitiveness as well as profitability.