How do you factor in shipping costs to your product’s profit margin?

by eddiewastaken. Posted on Sep 15, 2020    9    6


I make a product from lots of different raw materials, with the shipping cost getting exponentially lower with the more I order.

The same goes for the price of the materials - the more I order, the cheaper per item.

I only have a small (ish) cash flow, so I order more materials as and when I can to make my finished product.

I’m having a hard time saying ‘it costs me X to make each unit’ with each of these variables in play. Any advice on this?

Cheers


Comments

SafetyMan35 1

Use the worst case scenario. We have multiple suppliers for our components, some are extraordinarily cheap, but the supply is often limited (or they can't meet our demand), others charge a bit more, but they can meet our demand. When determining cost, we assume we will purchase 100% of our components from the more expensive vendor, but we purchase as much as possible from the cheaper vendor.

yogendra05 2

I think if you do proper planning by adopting Quality Management System practice will help you to make maximising the profit

UncleFishKiller 3

For the time being, you might need to track that expense by hand. As you grow there are programs that can help you amortize freight into your product cost figures.

NoBulletsLeft 10

I use the worst case average number. Say I normally buy quantity 10 of something, but for others that have multiple uses, I buy quantity 100 every time. To figure out my COGS, I use the qty 10 pricing for everything. It's not perfectly accurate, but it's close enough.

  eddiewastaken 2

Great answer. Thanks!

northerngurl333 5

And build a little into that....ie if it costs you 75c per item, round up a bit- 80c or even a dollar. This allows for fluctuations in shipping like fuel increases or currency shift etc. It also means that you can ride out some of the ups and downs that may come along- like say.....a pandemic.....before needing to adjust prices, which makes you look like a good business that doesnt spike prices in tough times.


Also, I use Excel go track a lot of this, and can break it down into best and worst case numbers for pricing work, cash flow AND ordering.