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How do you calculate your costs? How much is my time worth?

Perhaps a dumb and basic question - but I'm struggling more than I should setting my price.

I have a product and I manufacture it at home - my goal is to live off of the sales I make. So my sales ought to cover my living expenses and a little more. I've managed to attribute the costs of materials that I use during manufacturing process.

The part I'm stuck in is trying to reflect my own time and work into the price. I'll perhaps employ a second person half-time to help me out when demand grows. How do I do that?

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Best Answer

Price is what your buyer wants to pay you, based on their gut psychology. It is also what the competition allows you to operate at. Look up competitors to identify price space. It has nothing to do with your cost. If you spend 1000 hours making a ceramic cup it can still be sold at 2 dollars.

An item can be sold at multiple price points. Say 2 dollars and 2000 dollars. Depending who the customer is.

Other points

For now, just treat your time and effort as your net profit margin, or what’s left after you paid for the goods and ultimately sold them (your “gross” margin), and then what you paid for your office / overhead expenses etc. (this is your “net” profit margin”.

you should do some research as to what is a good profit margin for your type of product. For consumer goods, gross profit should generally be in the 50% range, with 75% or higher being very good and 30% or so not being very good. Then, your overhead cost should probably be 10-20% of the price if you’re including your labor, if we’re not then maybe as low as 5% or so.

Do the math on those margins and your quantities sold and it will spit out what your net profits or net income will be.

Best practice is to start pricing out on the high side, it's always easier to experiment down rather than experiment up.

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May 21, 2020 at 8:19:31 PM

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