How to Calculate the Cost of Goods Purchased
One of the most disheartening realizations of running your own business is the fact that your profit is never as simple as subtracting your purchase price from your selling price. However, that simple formula is certainly a key piece of the sales formula, just not the only one. Overhead is the big picture, but even within the cost of goods purchased, there are numbers to be considered to give an owner an accurate starting point for every product he or she sells.
Other People Are Reading
Instructions
-
-
1
Choose your product. Whether you are choosing cars or campers, watermelons or widgets, you first need to understand the product and the price. You want the best quality product you can procure for the best price.
-
2
Determine the quantity. Often, wholesalers will offer prices with sliding scales that allow for discounts to volume buyers. Choose the wholesaler or manufacturer that offers the best price for your company. It does you no good to get your widget from the company that sells 5000 of them at a dime apiece, but boosts the price to a dollar for lesser volumes.
-
-
3
Understand currency. Particularly in an economy lamenting a weak U.S. dollar, where you buy your product will determine how much your widget will really cost. Familiarize yourself with exchange rates. You may want to purchase from one country over another or you may want to watch international rates and lock into a price on a day or a week when the dollar is most favorable.
-
4
Calculate freight. A necessary factor in the cost of goods purchased is the freight that was charged for the product to reach your door. You need only divide the cost of freight by the number of products and then add that number on to each individual products. So 5,000 widgets at $1.00 cost you $5,000. The total freight was $100. Divide $100 by 5,000 widgets to get $.02. Add that to the $1.00 price per widget to get a new cost of $1.02.
-
5
Include add-ons. A widget may be a widget, but if you were able to get a great price on a dresser because it did not include hardware, you may want to purchase the hardware before you present it for sale to the public. In that case, you would add the cost of the hardware and include it in your purchase price before marking up the item for retail sale.
-
6
Do the math. Calculate the cost of goods purchased by adding your invoiced cost in U.S. dollars, plus freight, plus add-ons. This is the cost of the good and this is the base from which you will consider mark up.
-
1
