What are target costs?

How can costs be reduced without diminishing the product’s value for the customer? This question is at the origin of the target costing approach.

It is not a cost calculation technique, but rather a cost management method. Its objective is to deliver a product whose perceived value meets customer expectations while not exceeding a maximum cost, the target cost, which ensures that shareholder margin requirements are met.

This method is based on two principles: the additivity principle and the symmetry principle.

The approach aims to control costs while preserving customer value. However, it can be very complex to implement.