Woodworking Series: Counting Your Costs

Any form of business requires that you know how to calculate the costs if you want to get the profits. At times, one may put a final price on the product with the mind that they are making money only to find out that they are making losses. You have to have a defined way of calculating the costs so as to get the best out of the business. Here are some of the things that you should take into consideration if you want to earn good income.

  1. Cost of materials

The cost of material will be inclusive of all the materials that you use on the project. You need to always jot down all cost incurred when you purchase material. Start with the obvious costs like cost of lumber, hardware, and plywood. Take your time and include the costs of the materials that you may otherwise consider as miscellaneous. Miscellaneous costs could be the cost of things like varnish and sandpaper.

  1. Labor Costs

Always include the cost of your own labor. To get a good cost of your labor, you determine the amount that you would pay an employee to do the work and put that onto your labor. Make sure that the quality of work done reflects on the labor costs. The easiest way of getting the labor costs is to calculate it as a percentage of the material costs.

  1. Overhead Costs

The overhead costs include all the other costs that you incur even when you do not work. Such costs are things like rent, office expenses, advertising, and insurance. Make sure you also include the costs of shop supplies that are too minor to track separately.

  1. Profit Margin

You need to make sure that you make a profit. It is important to make sure that the profit margin is different from other costs. In fact, your profit is quite different from the labor costs. Your profit margin ought to be the amount that you deserve for taking the entrepreneurial risk.

Finally, if you are going to cater for shipping costs, make sure that you include the costs for the same on the product. If your products are high quality, then you will get good customers that won’t complain of the price of the product.

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Michael B.

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