Use a cost analysis template to price your products right
The absolute majority of small and medium businesses are not using a full cost analysis template of any kind. This is one of the key reasons why they are losing money on some of their orders (and never notice!)
If you are a manufacturer or a wholesaler, you have definitely been in a situation when a large retailer wants to place a large order at a very low price (at least in your opinion). If you are working in an industry where all the orders are being made through tenders, setting the right price should probably be your daily routine, but you do have the right tools? Or maybe you just put the price of your products based on what the market allows without delving how beneficial each of the products is for you?
The Functionality of the Model:
- attributing direct manufacturing costs by products (materials, payroll, contractor services, etc.);
- splitting indirect costs by product, in accordance with the principles defined by you (eg., based on the volume produced);
- possibility to relocate indirect costs between the product groups. Sometimes it is important for certain product groups with strong competition and price pressure. In this case, part of the indirect costs could be split between the other product groups;
- minimum price suggestions;
- sensitivity analysis (economies of scale). Calculate how the minimum selling price of each product will change when the total manufacturing volume changes;
- sensitivity analysis (price inflation). Calculate how shall the minimum price of each product change when raw material prices or wage levels increase;
- comparison of the minimum price with actual current prices, identification of problematic products and retailers;
- the model uses kilograms for weight calculations.