Cost Price and Selling Price.

It is hard to believe that many businesses don’t know how to cost. I know, you are saying, “Vic is dreaming!” However, that’s not the case. In 12 years of consulting, I’ve found that many, most companies in fact, take their FIS (Free into Store) manufactured or even their direct hourly price and add a percentage which either they believe is what the industry norm is, or what they think they can get away with charging.

This approach is not only flawed, but it can also be detrimental to the business. In order to truly understand and control costs, businesses need to have a solid understanding of their cost price and how it relates to their selling price.

One of the most important aspects of cost price is understanding the cost of goods sold (COGS). This includes direct costs such as materials and labour, as well as indirect costs such as overhead expenses. By understanding the COGS, businesses can make more informed decisions about pricing and profitability.

Another important aspect of cost price is understanding the impact of economies of scale. As production increases, the cost per unit decreases. This means that businesses can charge less per unit while still maintaining profitability. However, it’s also important to consider the cost of expanding production, such as investing in new equipment or hiring additional staff.

Selling price is equally important. A business can have the most efficient production processes and the lowest costs, but if the selling price is not set correctly, the business will not be profitable. Pricing strategy can be influenced by various factors such as competition, target market, and perceived value of the product or service. A business can also use different pricing methods such as cost-plus, value-based, or penetration pricing.

In order to make informed decisions, it is crucial for businesses to understand the relationship between cost price and selling price. This can be achieved through regular cost analysis and monitoring, as well as evaluating pricing strategies and making adjustments as needed. Additionally, businesses should also stay informed about industry trends and developments, as well as the economic environment, to ensure that their pricing strategies remain competitive and sustainable.

By understanding and managing cost price and selling price, businesses can ensure profitability and long-term success. It takes time and effort, but the rewards are well worth it.