For the purpose of this exercise we will look at physical products you make as one item and services as another. If you have a business of any sort at all you have overheads, whether or not you like it. The beauty about having a home based business is that some of your home expenses are tax deductible and these are worked out on a pro rata basis, in other words a % of the cost of the expense which would have been used for the running of the business.
Costing is an important step in making a profit as so often some costs are forgotten or not taken into account but they are there and the bottom line is affected. It is important that these sorts of details are researched and fine tuned before going into business. You don’t want to be 6 months into your business to find out that there is no way you are going to be able to make a profit. If you do your business plan you will have answered those questions there when researching your product.
How To Evaluate Your Product Costings On A Physical Product
When you are making your own products to sell there are several factors to take into account to arrive at the wholesale cost:
- the cost of the materials
- the cost of packaging
- the cost of distribution
- costs of business operation – telephones, vehicle, stationery, bookkeeping, electricity, etc
- time involved in making the product
Then you need to decide if you are going to sell retail and wholesale or just retail. It does pay to work out both costs although working out the wholesale cost is the most important because whatever way you sell your products your manufacturing side needs to stand alone profit wise. Then if you are selling retail say at a party or fete, then you add on a % as a retailer and that covers your costs as a retailer.
Costings For A Service Business
These are very similar as above but instead of having the materials cost (which you would have if you were a plumber, but pass on to your client) you would have tool replacement. Other costs which could be incurred such as petrol for machinery, cleaning products for cleaners, and so on, are just put under expenses for the business. These everyday expenses would have a heading of their own under the expenses column.
It is quite easy to keep these on an Exel spreadsheet so if you go here you can get your own template.
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