Difference Between Tangible and Intangible Cost

Tangible vs Intangible Cost

The difference between tangible and intangible cost is often subtle but can have great consequences for a company. People sometimes look at tangible costs only overlooking or ignoring intangible costs for which they pay dearly later in life. Tangible refers to things we can see and feel whereas intangible are things that cannot be seen or felt. Let us understand this by an example. Suppose the cost of doing an MBA course from a top business schools is $100000 while the cost of a low rung school is $50000. You can see these tangible costs and may decide on the cheaper college. But you see and feel the difference when you, after graduating do not find a good job whereas your friend who settled for the top business school gets very attractive job offers. You pay indirectly for having done your MBA from an ordinary school. You looked at tangible cost and did not look at intangible cost for which you pay later.

Similarly if a company decides to cut back salary of its employees, it sees the saving in terms of dollars that it is going to make but it does not see the intangible cost of this action which may show up as lower employee morale and lower productivity that may cost much more to the company than the saving it envisaged. Thus one notable difference between tangible cost and intangible cost is that tangible cost can be seen instantly whereas intangible cost is felt only later in future.

If a consumer buys a product from a company and it turns out to be defective, the company may take it back and return the money to the consumer thereby losing out in terms of tangible cost. However, if the consumer is still angry and relates this event to friends, the company may suffer later in terms of lower sales which is a much bigger loss and is called intangible cost.