Add up everything that goes into one unit. Add the costs you pay every month whether you sell or not, including a wage for yourself. Work out how many units you must sell to cover it all. Only then choose a price.
The mistake to avoid
Most small businesses set the price by looking at what others charge, then hope there is something left. Sometimes there is not, and the owner works harder each month to lose a little more. Costing first tells you whether the price works before you find out the slow way.
Step 1: the cost of one unit
Take one batch and list everything that goes into it. The example is a batch of 100 fat cakes. The figures are an illustration. Use your own slips.
| Item | Cost for the batch |
|---|---|
| Flour, 5 kg | N$85.00 |
| Cooking oil, 2 litres | N$70.00 |
| Sugar, yeast and salt | N$25.00 |
| Gas | N$30.00 |
| Packaging | N$20.00 |
| Taxi to buy stock and to the stand | N$30.00 |
| Total for the batch | N$260.00 |
| Cost of one (N$260.00 ÷ 100) | N$2.60 |
People usually leave out the transport, the packaging and the gas. Put them in.
Step 2: the costs you pay anyway
These are due every month whether you sell one unit or a thousand.
| Monthly cost | Amount |
|---|---|
| Stand fee | N$300.00 |
| Airtime and data | N$100.00 |
| Gas bottle and equipment, set aside | N$150.00 |
| Your wage | N$2,500.00 |
| Total each month | N$3,050.00 |
Your wage belongs here. If the business cannot pay you, it is not making a profit. It is using your time for free.
Step 3: break-even
Each unit you sell leaves something over after its own cost. That amount goes towards the monthly costs.
- At a price of N$4.00: N$4.00 − N$2.60 = N$1.40 left from each one.
- Monthly costs ÷ what is left from each: N$3,050.00 ÷ N$1.40 = 2,179 a month, which is about 91 a day over 24 selling days.
Below that number you are paying to work. Above it, the rest is profit.
Step 4: test a price
- At N$5.00: N$5.00 − N$2.60 = N$2.40 left from each one.
- N$3,050.00 ÷ N$2.40 = 1,271 a month, about 53 a day.
One dollar on the price cuts the number you must sell from about 91 a day to about 53. Now the question is a practical one: will your customers pay N$5.00, and can you sell that many?
If the numbers do not work
You have four moves. Each one is better than selling at a loss without knowing.
- Reduce the cost. Buy in bulk, share transport, waste less.
- Change the offer. A different size, a pack of five, something sold with it.
- Sell more. A better spot, longer hours, orders taken in advance.
- Stop selling it. And put the hours into what does pay.
For services
The unit is an hour, a job or a visit. Your time is the main cost, so decide what an hour of it is worth and count every hour the job really takes, including travel and waiting.