And What are the REAL costs…

This is based on a post written last year for Designer Biz. I am publishing it here at the request of a e-friend who wanted to use it as a starting point for a discussion in a group where all involved do not qualify for membership in that DBiz.

The question was;

Primarily my question is this: After arriving at my total cost for materials (chart, directions, fabric, floss, metallics, beads, embellishments, needle, etc.), is there a rule of thumb or a good suggestion of what my percentage of mark-up should be to establish my wholesale price for which I sell to the catalog company?

And then Wheat Wrote….

First piece of advice, unless you are ABSOLUTELY CERTAIN – and it is written into the order as a condition of sale that you will NOT Be expected to accept returns or chargeback on future sales of other items placed with this company,
Thank them for thinking of you, but your business is in designing and self publishing charts not financing their inventory costs at no risk to them.

There are companies who do “kitting” as a part of their business, to a very limited degree, we are involved in this but more often than not, sub out the work when we can. They usually charge us, depending on quantity (smaller qty, higher per unit price) cost plus labor plus 14 to 30% of the projected RETAIL price.

Second, okay you have decided to go forward,
YOU NEED TO PRICE IT OUT AS IF YOU WILL NEED TO HIRE SOMEONE ELSE TO DO THE WORK.

Begin by a complete cost analysis. Every single component, the minimum quantity you will need to buy either to meet the initial order from the catalog company or to qualify for wholesale pricing from the appropriate distributor.
NOTE This is NOT the amount ordered by the cataloger, say they want 36 kits, but to qualify for wholesale pricing you need to buy 48. Then your initial cost for that item is the price including delivery of 48 pieces.

Don’t forget the cost of packaging, the little bags to hold the beads, embellishments, etc. The labels and such you may need to prepare.

Any special tools you may need to buy and the supplies for it (not everyone happens to have bag sealing equipment in their basement)

Will you need to buy more than is needed “for this order” ?
Didn’t I explain that already, Yes, but you would be amazed how many people do not hear it the first 15 or 20 times it is said…
So, IF YES, then remember to factor in TOTAL cost as well.

Find out what if any requirements they have on how and in what time frames the product needs to be shipped.

IF YOUR DELIVERY IS DELAYED (lots of good reasons, waiting for a supplier to get a needed component that is out of stock or stuck in customs can cause serious delay)
WHAT IS THEIR PENALTY POLICY

Figure out the cost of packing materials and REMEMBER Not JUST the PER UNIT but the entire BUNDLE you will need to buy to get the best pricing.

Once you have all those numbers, “pretend” you have the order.

Factor in how long it took you to “source” and order all those components.

Allow that the cost of the components will be sitting on your credit card for at least 90-120 days so add in the cost of the money for 120 days of interest (and you might find that using 180 is even closer, but if the deal is with Wal-Mart think in terms of a year or more to see your first check)

TIME how long it takes to lay out all the components, then how long it takes to put them together all the way thru to packing a box which will have the minimum quantity of kits. (at least 12 I would hope)

NOW decide the value of YOUR time, and give LONG HARD Thought to IF You want to spend your time this way. If not, what will it cost to hire someone to do this for you.

In your deliberation please take time to consider what or how you will dispose of “leftover” components.

Another “hidden cost” in sourcing is Minimum Orders. Over the past week I had to source a particular bead for a kit to go with something that will be published in a magazine in June. The only supplier who had what I REALLY Wanted/Needed has a $250 minimum order AND while I fully expect to need no more than 50 grams of this bead, must order at least 500. The ENTIRE cost of that 500 grams will need to be factored into the cost of the initial run of these kits.

Okay, now ADD ALL THE COSTS, INCLUDING AND ESPECIALLY The cost of sourcing all the materials – and you have the INITIAL cost of “MANUFACTURING” the first run of Kits or maybe even only the Prototype you will be submitting prior to actually getting an order. .

Divide that number by the likely number of sales. Since it is a catalog, I am hoping they have guaranteed to buy a minimum of 36. So that will be number to use

AND THAT WILL BE YOUR COST PER KIT –

Now that you have determined the actual cost including the initial development expenses…

You need to determine a selling price, in my never humble opinion, this should be at least triple that cost for you Distributor price, at and least quadruple for your WHOLESALE PRICE.

Your markup has to cover your profit and perhaps in the future sales rep commission and/or discounting for distributors who will pay less than keystone pricing. Failure to allow for such expenses – not to mention marketing and other routine costs of doing business is the number one error most “designers” make when pricing anything from patterns to kits.

Please expect that MOST catalog businesses EXPECT you will give them Distributor prices which means if your wholesale per unit is $10, they will expect to pay $6.50 to $7 and may expect “free shipping”

I am SURE I left out a few things, so hopefully others will add their thoughts, by commenting.

Price higher than you think the market will bear? Then RUN, Don’t Walk away – why invest your time, money and thought in a project that will not make money and in fact likely will cost you money “in the long run”.

But ONCE AGAIN, everything else aside,

IS THIS HOW YOU WANT TO SPEND YOUR TIME?

IS THIS HOW YOU WANT TO INVEST YOUR WORKING CAPITAL?