As entrepreneurs, we should know our product costs like the back of our hand.
If we are baking cookies for example, we should know how much is the cost of all the ingredients, for us to know the basis of our pricing.
We all know that, right?
But if you have plans to grow your business later on, you’ve got to do more than that.
You should take into consideration the FULLY-LOADED cost.
What do I mean?
Fully loaded costs take into account ALL the costs of a product from sourcing, warehousing, production, up to delivery of the product to the customer.
Want some examples?
If we bake cookies, aside from the ingredients, we should also include the cost of sourcing the ingredients (maybe our trips to chocolate lovers store), the labor cost (even if we are the one making it), the allowance for spoilage, the delivery cost to the customer, etc.
If we are doing buy and sell, aside from the purchase price of the product, we should also include the sourcing (out trips to divisoria), the warehousing cost (even of we are just storing them at home), the labor cost (even if we are the one doing it), the allowance for defective items, the delivery costs, etc.
Failure to use the fully-loaded cost will suddenly hit you like Pacman’s left punch when you grow your business and then realize:
1.) You now have to hire employees (because you can’t do it alone anymore)
2.) You now have to pay commissions to your partners, resellers and franchisees (in order for them to sell your product)
3.) You now have to pay for warehouse (because your house can’t accommodate the inventory anymore)
4.) You now have to pay for delivery (because the items won’t fit in your car anymore)
And if your pricing structure is solely based on the “garage operations” and you failed to provide a buffer for these additional costs, you might have a hard time coping with it.
What do you think? What other costs are you currently not including when computing for the product cost?