Does the idea of calculating your product costs set off your gag reflex? Almost everyone hates having to deal with the numbers part of our businesses, but it’s too vital to ignore.

If you don’t know what it truly and completely costs to get your product to your warehouse – or garage, as the case may be – you’ll never know what you need to charge your customers to keep yourself in business. On the other hand, if you just take a little time and keep the following steps and details in mind, you’ll have taken a huge and important step on the way to success.

First of all, it’s vital to remember that the price you’re paying your supplier is only part of what your product’s actually costing you. While this may seem obvious to many, it’s amazing how many people overlook this important point, especially when they’re first starting out. You need to know how much it costs to get just one item – one of your T-shirts, for example – to you so you can then send them out to your customers.

Begin the process by creating a spreadsheet in Excel or a similar program in which you’ll list every single cost associated with getting your product to your door. What’s great about this virtual way of accounting is that you can create equations within the spreadsheet. This means that if, for example, the costs of your labels go up or your shipping costs change because of the price of oil, you simply plug in the adjusted cost and the software re-calculates everything else for you. How great is that?

So, along the left side of your spreadsheet, list all the different products in your line. Across the top, create column headings for all your different product costs – and this means every single one.

Start out with the obvious: How much does your supplier charge you for, say, one finished handbag? That’ll be your first column. Then add in the incidentals, like labeling. Do you have both a sewn-in label and a hangtag for each item? That’s another column. Do you include a little card that tells the story behind your product? If you’re making candles or lotions, is there a special box they go in? If your manufacturer includes all these extras in their price, then don’t worry. But usually these are separate charges and so you need to add them in too.

Remember those shipping costs? It’s amazing how much they can add to your product cost, especially if you do your manufacturing in another country. Find out how much it costs per pound or kilogram (remember the rest of the world’s metric) to ship your product to you. Determine how much an individual product weighs and then you’re ready to calculate how much it will take to get it delivered. Are you just starting out? That means you’ll have to estimate your shipping and freight costs. In that case, it’s a good idea to add about five to seven percent to this cost as a contingency, just to be safe.
If you’re importing your finished products, you’ll also need to have a column for duties and tariffs. They vary widely – from five percent to upwards of 25 percent – depending on your product and the material it’s made out of. Be sure to check out the US International Trade Commission website to find out how much you’ll be charged. If you’re using a broker or agent to help you overseas, you’ll need to add in their commission too.

Once you’ve entered all your costs, create a column in your spreadsheet that tallies them all up for you. Congratulations! You now know what it truly costs to get your product to your door.
Granted, it’s not the most fun part of the business. But think about it – by taking a little time now to set things up right, you finally know what prices you need to charge to arrive at the “promised land” of profit.

Visit Manufacturing the Right Way for more tips.

Marty Stevens-Heebner is president of Manufacturing the Right Way and the creator of the award-winning Rebagz Eco-Chic Handbag line (www.Rebagz.com). To sign up, visit her site at: www.ManufacturingTheRightWay.com.

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