Costing & Pricing

In This Section, You Will Learn:

• • Calculating true cost per unit
• • Pricing strategies
• • Margin targets
• • Hidden costs to include
• • Break-even analysis

Calculating Cost Per Unit

• What to Include:
• • Raw materials (main ingredients)
• • Packaging (containers, labels, boxes)
• • Utilities (electricity, gas, water)
• • Your labor time (value it!)
• • Wastage (typically 5-10%)
• • Transportation/delivery
• Cost Calculation Formula:
• Total Cost = Materials + Packaging + Utilities + Labor + Wastage
• Cost Per Unit = Total Cost ÷ Units Produced
• Example (500ml Hand Wash):
• • Chemicals: Rs. 25
• • Bottle + cap: Rs. 20
• • Label: Rs. 5
• • Utilities/labor share: Rs. 10
• • Total Cost: Rs. 60

Pricing Strategies

• Cost-Plus Pricing:
• Cost × 2 to 2.5 = Selling Price
• Rs. 60 cost × 2.5 = Rs. 150 selling price
• Competition-Based:
• Check competitor prices, price slightly below or premium above.
• Value-Based:
• If your product is better quality, charge premium.
• Pricing Tiers:
• • Retail (direct to customer): Full price
• • Wholesale (to shops): 20-30% discount
• • Bulk (to distributors): 30-40% discount
• Never Price Below:
• 2x your cost (for sustainable margins)

Profit Margin Targets

• Healthy Margins:
• • Retail sales: 50-70% gross margin
• • Wholesale: 30-40% gross margin
• Gross Margin Calculation:
• (Selling Price – Cost) ÷ Selling Price × 100
• Example: (Rs. 150 – Rs. 60) ÷ Rs. 150 × 100 = 60%
• Net Margin (After All Expenses):
• Target 30-40% for home-based business
• Why High Margins Matter:
• • Cover mistakes and wastage
• • Fund marketing
• • Enable scaling
• • Survive price competition

Hidden Costs to Include

• Often Forgotten:
• • Delivery charges (if you pay)
• • Returns/refunds (2-5%)
• • Sample giveaways
• • Packaging mistakes
• • Raw material spoilage
• • Your time spent on non-production
• Platform Fees:
• • Daraz: 15-20% commission
• • Payment gateway: 2-3%
• • Delivery partner: varies
• Marketing Costs:
• • Facebook/Instagram ads
• • Free samples
• • Packaging improvement
• Rule: Add 10-15% buffer to cost calculations

Break-Even Analysis

• What is Break-Even?
• Point where you recover all your investment.
• Calculation:
• Break-Even Units = Total Investment ÷ Profit Per Unit
• Example:
• • Total investment: Rs. 40,000
• • Cost per unit: Rs. 60
• • Selling price: Rs. 150
• • Profit per unit: Rs. 90
• • Break-even: 40,000 ÷ 90 = 445 units
• Timeline:
• If you sell 15 units/day = 1 month to break even
• After Break-Even:
• Everything is profit (reinvest to scale)