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?
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.
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.
Question asked by
May 21, 2020, 8:19:31 PM
Related Picture Note Cards
The process for a process to gain access to market
A product must gain access to a market and then bought by a customer who is comparison shopping in a safe place. The market validate the quality and safety of the product.
Steps to turn an idea into a product innovation
What are the steps to turn an idea into an innovation? there are at least the following steps. The idea must be turned into a product, and the product must enter the market. In the market, the target audience will examine the artifact - if they buy, then the product becomes a merchandise.
Startup failures - why they fail?
A first time entrepreneur always under estimate the difficulties. Each voyage is a ship with 2000 holes - each hole is only visible when the boat is in water.
Related Quote Cards
Startup Lingos To The Point
How to turn an interest into a money maker. How to attract people, how to stimulate people to pay, how to make profit, how to make relations, how to keep relations.
How much do I have to give my audience so they can pay me something in return? What do they value? what problem do they search for answers on your own? I want to solve that problem.
Brand means name recognition. A lot of people knows what your company does and what you stand for. Brand is result of long campaign of consistent value provision and media cultivation. Brand helps a company reduce marketing cost.
Whether there are buyer willing to pay or not. For that to happen you must provide extreme value. The entire startup process would be based on guess before the validation. Validation happens in a market, not on the street.
Value is what you give customers beyond the price you charge. Value is effective solution to a problem. The price your customer pays reflects whether the problem is big for them and whether your solution is uniquely effective. Value stems from quality and detailed work.
Marketing means bring your product to the market and bring your message to your customer. Marketing is not salesmanship. Marketing is to penetrate the world of commerce through many barriers and existing networks.
Minimally viable business, or MVC, minimally viable company. A company that scrapes by, full of guess and hope and no traction and sales. When you give your customers things for free they all take it. But they never pay and you can never rent a table at the market.
Minimal viable product. A full artifact of a real product. Something that works ALL THE TIME. You can demonstrate the real effect on real people - not to sell hope. The MVP may not have certain non-essential bells and whistles, but it needs to have appeal value.
Customer is king
A business lives at the mercy of its customers. You provide your customers 10 dollars worth of value and they pay you 1 dollar, not knowing that your company only costs 99 cents to provide the item. The value is not the item - the value is what is attached to the item.
Company culture is based on a company making money. Once your workers are paid, they need to have a mission and aspiration so they are not bored everyday and make trouble in the work place.
A company valuation is cash investment divided by the percentage. As long as your story is good, the valuation will keep coming, and the investors will keeping falling into the line.
Return on investment
Investors are either behind family fortune (never work with them) or for rich clients as investment vehicle. Both need returns 2-3 times better than stock market darlings.
Having found what people want, not just what people may need. Your offering and their acceptance is sure, no longer a guess. You can provide it for profit, and you can indeed making living on it. Traction is sometimes called validation. You are no longer a theater. You have touched nature, and found cash vein.