Level 1 · Part 3
Costs and prices
Count every cost before you set a price, including your own work.
A price is what a buyer pays. A cost is what it takes you to provide the product. If you do not know your costs, you cannot know whether a price is good.
What to count
- Inputs: seed, fertiliser, feed, ingredients, water.
- Labour: hired workers and your own work. Your time has a value, even if nobody pays you a wage.
- Transport, packaging and storage.
- Losses: product that spoils, is damaged or cannot be sold.
- Fees, taxes or levies where they apply, and the cost of borrowed money.
- The time between spending money and being paid.
Fixed and changing costs
Some costs stay about the same however much you produce, such as the rent of a stall or a tool you bought. Other costs rise and fall with the amount, such as seed or packaging. Knowing which is which helps you see what happens when you grow or shrink.
| Item | Amount (invented units) |
|---|---|
| Seed and inputs | 40 |
| Hired labour | 30 |
| Own labour (valued fairly) | 30 |
| Transport and packaging | 20 |
| Expected losses | 10 |
| Total cost | 130 |
| Money received from sales | 150 |
| What is left (before taxes) | 20 |
Why own labour is in the sheet
If you leave your own work out, the business looks more profitable than it is. Later, when you hire someone or get tired, the real cost appears. Counting it from the start gives you a true picture.
Exercise 1.3 · Build your own cost sheet
- Choose one product and one season or batch.
- Fill in the table above with your own items and amounts. Use real figures from your own records or from a quick check at the market.
- Divide the total cost by the amount you produced to find the cost of one unit. Compare it with the price buyers pay.
- Write down one cost you could reduce and one you may have forgotten.