Tuesday, November 10, 2009

Breaking Down Your Costs

Oops! This was supposed to be Wednesday's post but I accidentally published it early when I wanted to schedule it. There will be a short post on Wednesday instead.

How much are you really making from your work? Sometimes we don't honestly exaluate our costs by leaving off some of the costs.

A common pricing system that I see is Materials + Time = Wholesale x2 = Retail but I think this formula is flawed because it doesn't take into account other costs such as shipping materials, other costs, and fees.

I use a formula of Materials + Time + 15% = Base Wholesale x2 = Base Retail however because of shipping and fees from etsy and paypal it becomes more complicated after this. I add the total cost of shipping which is postage and shipping materials. Base Retail + Shipping Costs = Total Cost This number is what I WANT to receive after fees.

Note: I actually have a sliding scale for wholesale depending on order size but 200% is what I use for calculating the retail price.

Now Etsy and Paypal do fees different, Etsy doesn't charge fees on shipping while Paypal does but for simplicity I'm just going to assume they both charge on the total amount.
Etsy fees: $0.20 + 3.5%
Paypal fees: $0.30 + 2.9%
If you are interested in the math here it is (skip to the bottom if you're not)
Total Cost = C
Total price I need to charge = P
C+[$0.30+(2.9%P)]+[$0.20+(3.5%P)]=P
C+[$0.30+(.029P)]+[$0.20+(.035P)]=P
C+$0.50+.064P=P
C+$0.50=P-.064P
C+$0.50=.936P
(C+$0.50)/0.936=P
So if the amount I need to make is $28 I need to charge ($28+$0.50)/.936=30.45
Total Price - Shipping Costs = Online Retail

I've put this information into a spreadsheet on Google Docs with an imaginary item entered into it. You can download it in Excel or Open Office format and edit it with your own numbers.
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