Many makers set their price by looking at their neighbour's. As long as you do not know your cost price, you do not know whether you are making or losing money on each sale. Here is the method.
In a hurry? Try the Compta++ demo
What is the cost price?
It is everything you spend to get one unit ready to sell. Not only the materials: also the packaging, the working time, and the failed units you will never sell.
The four items to add up
For a production batch, count:
- Raw materials, at the latest purchase price (not the price from six months ago).
- Packaging and labels.
- Labour: the number of hours multiplied by the cost of one hour.
- Losses: broken, failed or unsellable units.
Looking for a solution for your business?
Talk to Kazi-SoftAn example: a batch of 100 soaps
Let us take a made-up example, in CFA francs (F). For 100 soaps, you use 12 kg of oil at 1,100 F per kilo, 2 kg of lye at 900 F per kilo, 100 wrappers at 25 F and 4 hours of work at 750 F per hour.
Materials: 13,200 + 1,800 = 15,000 F. Packaging: 2,500 F. Labour: 3,000 F. Batch total: 20,500 F.
If 3 soaps out of 100 fail, you have 97 left to sell. The cost price is therefore 20,500 divided by 97, about 211 F per soap. At 350 F each, your margin is about 139 F, or 40% of the selling price.
The most common mistake: forgetting losses
Dividing the batch cost by 100 instead of 97 gives 205 F: the gap looks small, but over thousands of units it adds up to real money. The higher your losses, the more the omission costs.
Redo the calculation at every price change
The cost price is not fixed. As soon as the price of a material changes, your margin changes too. That is the whole point of a tool like Compta++: you enter the recipe once, and the cost is recalculated at every purchase.
Frequently asked questions
Should I count my own working time?
Yes. If you do not count your time, you are working for free without knowing it, and you will never be able to hire someone to replace you at the same selling price.
What about rent, electricity, transport?
Those are fixed costs. They are not part of a batch's cost price, but your total margin must cover them. Track them separately to know your net profit.