Costing for CASH

An interesting week has gone by and I have had the most exciting time teaching students or should I say would be entrepreneurs. It is my passion and having such a great group of individuals who are dedicated to the process which will lead them to success is so very gratifyng.

What was interesting was a costing exercise that we went through in the pricing section of the training. It became evident that the need for complete understanding of the effects that inaccurate price determination could lead directly to bankruptsy.

The challenge was understanding the cost of goods sold. What do the "ingrdients" cost the company in relationship to the quantity sold, and at what price should they be sold at.

Some thoughts:

* Always sell your products for twice of what it cost you - you will always make money

* Sell the product at the same price as the competitor

* Sell the product below the competitor price so you can out sell them

* The cost of the product is not important as you get it back when you sell the product

Some solutions:

Never use the above thoughts.

Firstly how would you know if twice the cost price will cover your overheads. How do you know that the price of your competitor product will cover your cost of good sold, never mind the additional overhead. Selling below the competitors price can just be a disaster

My suggestion is to know your costs, calculate exactly what your product is costing you. Whether you are buying all the raw material or makeing part or all of the product.

Remember for every dollar of selling price a portion must cover cost of good sold, a portion must cover fixed and variable overhead and there must be a contribution to profit.

So it is very important to have a solid understanding of your costs.