When calculating your selling price, of course, you need to check whether the price you set will allow you to cover all costs. Overheads consist of different types of costs:
Material costs: to manufacture your product, you will usually need to purchase raw materials, fuels and additives.
Manufacturing costs: These costs include both the salaries of the employees who manufacture the product and the costs for machinery and the warehouse.
Development costs: the development of the product or service has cost you time and money. Experts advise against including these costs in the final price, otherwise the latter would be too high.
Service costs: the execution of the service, but also the services of advice and transport of products generate additional costs.
Distribution costs: Marketing and distribution also cost money. They must be included in the price calculation.
Administrative costs: accounting also causes costs in the background.
The importance of the different types of costs depends on the nature of your business. For example, if you offer a service, the material costs are generally significantly lower than in the case of a production site.
The different types of costs can be roughly divided into two categories: on the one hand, unit costs.
These are the costs generated by each individual product. This is often the case with material costs, for example when it is possible to say precisely how many screws are needed in the manufacture of a piece of furniture. You can have the ebay fee calculator for proper results now.
General costs are different: these cannot be attributed to a particular product and are distributed among all products produced. The costs of acquiring and operating a saw, for example, are spread over the price of all the tables that the saw has made it possible to manufacture.
If we add the unit costs and if we distribute the general costs over the total number of cost supports, we then obtain the cost price of a product or service.
When you offer services, the price you charge is probably an hourly rate. In this case, you will also have to take into account all the positions that take place outside the service. You should also think about your days off and sick when you may not be earning any money. The hourly rate must take these “off” times into account.
Profit Margin
Of course, you don’t just want to cover the costs with your products and services, but you want to make a profit and now you have to decide on your profit margin. Many business creators here make the mistake of aligning too closely with the usual margins in the sector. They then lose a potential margin if customers were willing to pay more. If one determined the price that potential customers were willing to pay at the first step, then it is easy to estimate how much one can add to the cost price.
Discounts
Set your list price so that you can also generate a margin by making future discounts. So that a temporary discount does not devour your profit, add it when setting the price. You should also plan at the same time the amount of discounts (a discount on the price in the event of payment of a product or service within a defined period). While the discounts range from 5 to 50 percent, the discounts are generally in the range of 2 or 3 percent.
