Level 10 · Part 2
Costing one unit
Know what it truly costs you to make and deliver one unit, so you can set a price that works.
A price only works if it covers the full cost of the unit and leaves something for you. Count every cost, not only the obvious ones.
- Raw materials, including what is lost in cleaning, trimming or drying.
- Packaging and labels.
- Labour: yours and other people's.
- Energy, water, fuel and equipment use.
- Transport and fees (Level 7).
- Losses and unsold stock.
- A share of the setup cost, spread over the units you expect to make.
| Item | Amount (invented units) |
|---|---|
| Raw materials | 40 |
| Packaging | 10 |
| Labour | 20 |
| Energy and transport | 15 |
| Share of setup cost | 5 |
| Total cost of the batch | 90 |
| Units sold in good condition | 30 |
| Cost per unit | 3 |
As in Level 7, divide by the units that are actually sold, not the units made. Then compare the cost per unit with the price buyers pay, and with a price that leaves you a margin.
Pay yourself
If you leave out your own work, the business looks profitable until you ask how you will live. Count your time as a cost, even if you do not pay yourself every day.
Exercise 10.2 · Cost one unit of my product
- List every cost for one batch, using your real figures.
- Divide by the units you expect to sell in good condition.
- Compare your cost per unit with the price buyers pay now, and write what you learn.
Background reading for this part:
- Start and Improve Your Business (SIYB) — International Labour Organization (ILO)