Costing Your Homemade Products For Sale

Posted on Posted in Business Basics

Cost Product Or Service Home BusinessFor 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
  • marketing/advertising
  • 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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8 thoughts on “Costing Your Homemade Products For Sale

  1. This is such an important topic, Kaye. It’s especially important for service-based businesses, I think, because it’s easier to overlook costs.

    1. That’s right Leanne, the expenses are not quite so obvious in that type of business and also it is easy to put in work that is not accounted for. Accounts and solicitors bill their time by the quarter in most cases! It is easy to ‘lose’ billing hours or expenses in a service based business.

  2. Pricing is always the area that I struggle with. I check the competition and see what they are charging. I priced my book at what I thought was a fair price and it didn’t sell until I lowered the price.

    It’s like throwing noodles at the wall to see if they stick.

    1. Yes, I agree with you Julia, pricing books is a very hard one.

  3. Pricing is very important. I find that I struggle with putting a price tag on my time more then anything. Some of the things that I make can be time consuming and I most likely have not fit in a proper price for my time when I am pricing my items.

    1. I assume Beth you are talking about professional scrapbooking. I found that it was very hard to price a true value for my time when I was in the craft field. The only way I could improve that was trying to streamline work but if you are making unique pieces each time that is impossible anyway. Perhaps increase your price a little where you can – in other words where something looks really good and a little complicated but was easy to do.

  4. Hi Kaye! Great information–you’re absolutely right, pricing is very important! It’s something I’ve struggled for since starting my business… Great reminder to evaluate and consider all the factors. 🙂

    1. It is so easy to make mistakes when you have other things on your mind too Eyenie. It doesn’t help that our expense costs are changing all the time either.

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