Costing Your Product
Costing your product is an important part of manufacturing and operating as a commercially viable business. To work out your profit margin you will need to calculate the cost per product and extra costs in production.
The best way to start is to calculate budgeted fixed costs and the cost of production. When you are first starting out it is best not to include the cost of your time – that is the only thing you get for free! It is much harder to calculate how much fixed cost you have per product, as this depends on how much you sell. However it is still important to consider the costs, to make sure you are covering them from your profit. You can also use it to work out how many products you need to sell to pay your month’s bills.
For fixed costs you could budget for:
- Marketing
- Fairs/Markets
- Equipment
- Overheads – if you rent a space for production
- Anything else not relevant to the production quantity
For your production costs you could include:
- Ingredient
- Packaging
- Label(s)
- Electricity/Gas
- Consumables – paper towels etc.
You can use all your costings to decide how much to sell your product for. Good luck!