Casey Anderson
Feb 23, 20222 min
It is important to understand the true cost of your product to know how to price it properly, and make a profit. You should be making money from every sale right from the start. In order to do this, it is important to collect and keep track of your time and expenses. When operating a business there are direct and indirect costs. Your expenses are direct costs. Your time, labour, and overhead are indirect costs.
When tracking your expenses remember to account for your own labour.
Figuring Out Your Costs:
Fill in the chart below to help you come up with your product cost.
It is important to consider whether your production volume affects the total cost. For example, if you are making cookies, it will likely be cheaper to purchase the ingredients in bulk, lowering the cost of materials.
Doing Market Research:
While knowing the true cost of your products is essential, it is up to you to decide how much you will charge for an item. At this stage, we recommend that you do some market research and check what other businesses are doing. What are other companies selling similar products for? Is your costing in line with other businesses?
If your products are more expensive that others, that’s okay, there might be a good reason. Maybe you are buying all locally sourced ingredients which adds value, and some customers might be happy to pay more for that. It is important for you to understand the decisions around your pricing so that you can make a fair profit as well as answer questions that customers might have.
Revising Your Costs:
If you cost out the item and find that it is to expensive to make, review each point to see where you may have an opportunity to save costs. Maybe you can find a supplier that doesn’t charge for shipping, or maybe if you buy in bulk you can save.
You want to make sure your customers feel like your products have good value, but that does not always mean that items have to be cheap.
The market will provide the opportunity for direct feedback from customers. Listen to their feedback and comments on value and price. Ideally, the customer will feel like these two qualities are a match.