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Calculating your true cost price per item You need to be able to correctly calculate your cost to produce an item, to be sure you are marking up your products correctly. The cost of the finished item is calculated by adding the following: 1. Cost of the item itself – say a Mug – costs R 20.00 + VAT. If you are registered for VAT, then work on all the costs excluding VAT (as you claim back the VAT you paid). If you’re not VAT registered, then your cost will be R 20.00 + VAT = R 23.00. VAT has no effect on the profit you make. 2. Cost of the freight to get the item to you (this is where it’s important to make sure that you get as much product as possible for the freight you are paying). The more items you courier, the lower the cost of each item will be (as the rate per Kg comes down). Divide the courier cost by the amount of items shipped. 3. Labour Cost – Take the money you are paying your workers, and divide that by the amount of product they can produce in a month. This cost is affected by the equipment you are using. Let’s say you have 1 worker earning R 6,000 per month. If they are using a low volume mug press, they can produce 40 mugs in a day, which translates to 800 mugs in a working month on average. This gives you a cost per mug for labour of R 7,50 (R 6000 / 800). In truth it’s not going to be this high as while waiting for a mug for example to print thy should be doing other jobs. From a purely cost perspective it’s cheaper to use shrink bags and an oven instead of a mug press for volumes as you can decorate more mugs at a time and a small oven will use a similar amount of electricity to a mug press and still give you or an employee time to do other jobs while the mugs are baking. The point I’m trying to make here is that you should have the right equipment for the quantity of work and type of work you’re doing as the cost of the equipment will save you from spending more on labour. A good example is a courier who needs to send a truckload of stuff to Cape Town but doesn’t want to buy a truck and only has a bakkie. The courier would need to make 10 or 20 trips to get the same volume of goods to Cape Town as the truck. 4. Electricity – Take the wattage of your machine that you’re using use the following formula to work our your electricity cost per hour – (Wattage / 1000) x tariff. Working example. You have a heat press rated at 2300W and your municipality charges R 2.85 per kw/h – 2300 / 1000 = 2.3 x 2.85 = R 6.56 cost of electricity per hour. From this you can see if’s best to print and prepare all your jobs for pressing so that as soon as you are done you can put the machines off and not waste money.
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