Help - how do you cost a product

seibassman7

Well-Known Member
Can anyone help? My wife has been asked to prepare a food product and has been asked to submit an invoice for costs time etc. She has never done this before it has started a discussion on doing this. We could do an invoice just to cover ingredients which I would be happy with but I would also like to know the true cost of the product for future reference.

Does anyone have any experience of doing this or any advice on how to properly cost out a product and what items would be reasonable to charge for , or is there a rule of thumb used and then a % added for reasonable profit.

We are totally in the dark so any help or advice would be appreciated.

Kind regards SBM
 
One formula was to add cost of all product portion costs and multiply by 3.75, this will give a price that included labour (and maybe VAT) can't quite remember.
 
Looking at some prices it seems to take the cost of the ingredients or parts then add 100% then times that by 10 and divide by the day of the month and voila a price!
 
You need to decide how much you want to make from providing the service, and then add that to your direct costs such as the ingredients, electricity, time it takes you to procure the ingredients, any insurances or costs such as hygiene certificates etc, be very careful if customer is asking for full breakdown of all these costs as its normally a way of getting you to work for nothing!
If I was you I would be offering to do it for an agreed fixed price that you set, its then up to them if they want to accept
 
Thanks for the very speedy replies, it has given me a good start and I think we will work out the basic costs and just give a single cost and make it clear it is for this batch only and see how it goes.

I will then start a complete breakdown of all time costs, ingredients, electricity etc and add a profit element and see what we come up with. We will also see what others charge and see if we are too far out in what our figures come out as. Thanks once again. Regards SBM
 
Unless it was for charity, cost of ingredients, x hours at minimum wage then add 50% to the total.
If it`s not for charity your Mrs deserves something out of it even if it`s only for her time.
 
The way I charge is cost of raw materials plus 20%(covers consumerables and sundries plus electricity etc) and then add on an hourly wage. The hourly rate depends on the level of skill required, £10/hr for general work, £20/hr when doing electrical work sometimes more depending on how difficult/skilled/unpleasant the work is. All depends on how much you value you (or your wife's) time.
 
rule of thumb is Direct costs (labour +materials ) x 2 this used to give use 5% Profit on sales for a manufacturing company

you need ot work out your labour cost ie hrs x rate
 
And most small businesses try to work out what it actually costs to produce, the total cost. Then they charge as much as they think they can get away with :thumb: It's not unusual to charge a different price to different buyers.

That's the real world, not the theoretical one.
 
Somewhere there will be on your gas/electric bill a cost per unit.

You'll be able to work out, from internet, how many units of energy you've used. Also if you have bought the ingredients don't forget to add mileage costs and time used when buying them in addition to your time spent actually making the things once those ingredients have been purchased.

Add mileage costs and time taking them, after they've been made to where they are being delivered.
 
So to summarise, you need to cost out:

Ingredients (including not only the product, but packaging)
Time (labour)
fuel costs (electricity, gas and petrol/diesel)
If you have spent money on dry runs (development costs) add something to cover a proportion of them, so that over a longer period they are recovered.
A sum to cover wear and tear on equipment used (mixers, ovens, vehicles etc.)

Then, having added them all together, you can then decide what sort of profit you can aim at, as a percentage of your costs added on. Considerations for that would include:
1. Is it worthwhile just doing it for a pittance?
2. If you charge too much, will there be any takers?
3. What any opposition might be charging (competitiveness).

Of course there could well be other things to take into consideration. I obviously don't know what the product or customer is, but if, for example it's catering for cricket matches, you might do it at cost because you take your profit from the enjoyment of being a part of the club. Another thing to consider if things grow would be advertising costs. If things get big, there's the VAT threshold to consider and income tax.
 
Thanks for all the replies, they are most useful. Its funny how potential opportunities come along and if its something you have never dealt with, how unprepare you are. For this order we do not want to undersell ourselves but also at this stage not be too greedy. Thanks for all your advice and pointers, much food for thought. SD comes through again. :thumb: cheers SBM
 
SBM.
Be careful not to make the first batch too cheep, as if you do this and a further order is placed you will be expected to repeat at the original price. It's no good saying that was a one off. How will your customer price up the product if they don't know a purchase price? You need to work out real costs based on likely quantities being sold. how many you can produce in a given time and what is the industry wage for such work? You have to remember that if you are stuffing cakes into boxes, chances are you will earn minimum wage in the real world, so don't pay yourself 50k a year as this will make your figures just too high and a product that is not saleable. Doesn't matter that you are a highly qualified space engineer who has stumbled on a secret cake recipy, you still only worth what anyone else would get paid for stuffing boxes. You get the picture!!
Good luck.
 
Woodmaster you are quite right in what you say and I take it on board. We will proceed with care and if it works out great if not we will look at other options or keep it to ourselves. We have got some useful advice from here for which we are grateful. regards SBM
 
The cost to make it x 5.
Simple then!

Don't forget to factor in the clean up of the dirty pots and trays and all the other utensils and equipment used in the process. Utilities - water for the preparation and any sauces and then water for cleaning up.

There is no point making a product if you are not making a profit at the end of it. If that means someone else makes it for less, then leave it alone, it's not worth your trouble.
 
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