Overheads BONUS Insight

 
flourish-retail-icon-workshops.png
 

Calculating your overhead % per product

Now you understand how to calculate your selling price, and you have
an initial view, you can further refine your overheads cost.

Why do I need to do that, I hear you ask?
Let me show you.


Example:
 

I have 3 products in my range.
The cost of making each one is below (product + time):


£75 Cushion

Total Cost = £47.25

Profit: £27.75, 37%

£94 Cushion

Total Cost = £59.25

Profit: £34.75, 37%

£112 Cushion

Total Cost = £70.56

Profit: £41.44, 37%


Notice that all of my profit margins are the same (37%).


Based on my overhead calculation above, I need to add a £15.97 cost to each product.

So my total cost and profit for each cushion would then be:


£75 Cushion

Total Cost = £63.22

Profit: £11.78, 16%

£94 Cushion

Total Cost = £75.22

Profit: £17.73, 19%

£112 Cushion

Total Cost = £86.53

Profit: £25.47, 23%


I aimed to get to a 20% profit margin, so the £94 cushion is the closest, but I'm getting less
profit on the cheaper cushion, and more on the higher priced one. 


To keep the profit margins fairly weighted, I should use a % overhead cost.

Firstly, calculate your Average Selling Price (ASP) by adding all of your
different prices together and dividing by the number of products:

£75 + £94 + £112 = £281 / 3
= £93.67 ASP*


*A more accurate way of calculating ASP is to work out the mix of products you will sell.
For example 15 x £75, £10 x £94, 5 x £112 = a total income of £2625.
Divided by the number of cushions sold: £2625 / 30 = £87.50 ASP.  
It is lower because you are selling more of the £75 cushions.

You can use this method if you have a view on your sales by product and price point.


Now take the Overhead cost per product and divide that by the ASP:

(£15.97 / £93.67) * 100
= 17.0% Overhead Cost
 

This is the percentage which we will apply to the Selling Price
(SP x Overhead Cost %), to get our new Overhead Cost per product.


£75 Cushion

Total Cost = £47.25 + £12.75

Profit: £15.00, 20%

£94 Cushion

Total Cost = £59.25 + £15.98

Profit: £18.77, 20%

£112 Cushion

Total Cost = £70.56 + £19.04

Profit: £22.40, 20%


Ta-da!
All of my margins are now exactly the same, and the overhead cost has been
fairly weighted across all of my products, regardless of the selling price.


You can use your FREE Overheads calculator to work this all through,
included in your Flourish Pricing Calculator.