The cost of a product is the totality of all enterprise costs per unit of production, that consists of direct (e.g. materials, labor, rent) and variable costs. Cooperation with bigcommerce development agency also affects the cost of your product or service.
Knowing what this economic term and phenomenon consists of allows you to determine pricing policy and make strategic decisions in business.
Cost price types
The manufacturer is interested in the total (final) cost of the product to calculate the selling price. It includes the following types of costs:
- direct — directly related to the production of a unit of product (material, wages of workers involved);
- shop floor — all costs associated with maintaining production capacity, wages of all workers (including those not involved in the manufacture of the product) are taken into account;
- production — general business expenses of the enterprise are added to the first two options.
A separate line includes sales costs and the costs of maintaining personnel who are not directly involved in production. It includes management, personnel, accounting, logistics, and so on.
What is included in the cost in more detail
Product cost is a complex concept. The main points with explanations are presented in the table below.
|Materials, fuel for production needs
|Everything that is needed to produce a product, without which the physical product cannot exist.
|These are buildings and expensive equipment. Its cost is transferred in equal parts to the cost of the product.
|Rental of buildings, production areas.
|This amount usually does not change over time. Fully taken into account in cost calculations. For an online store, this includes renting servers.
|Basic salary, taxes and payroll fees
|Hourly, piecework salaries
|Additional salary, taxes, payroll fees
|Various bonuses, additional payments, holidays, and overtime.
|Total production costs
|It includes the office, management salaries, repairs in non-production premises, and their maintenance. A certain percentage of these costs is transferred to finished products.
|Employees’ business trips
|Allocated to employees who are forced to work outside the company (not to be confused with remote workers). The employee travels outside the enterprise or locality for at least a day.
|Third-party company services
|It could be an accounting company that provides outsourced services to the company.
|Remuneration and services for company management.
The rules for determining the cost of a product are described in accounting standards and depend on the laws of the country where the enterprise is registered.
What is included in the cost of an online store?
For an online store, the cost is calculated taking into account the costs characteristic of this business. There are basic steps:
- Expenses for the purchase of goods.
- Consider the costs of rent, warehouse maintenance, accounting and inventory management.
- Include costs for order processing, packaging, labeling and shipping.
- Website maintenance — support and updating of the online store, hosting, technical support, software development and maintenance.
- Marketing costs — advertising, SEO optimization, content marketing.
- Customer service costs — communication through various communication channels, shipment and return of goods.
- General indirect costs — depreciation of equipment, rental of premises, management costs.
Calculate the total cost and get the total cost of the online store. It will help you make decisions on pricing, inventory management and business process optimization.