How to Calculate Minimum Selling Prices

Written by danny donahue
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How to Calculate Minimum Selling Prices
Material and labour costs make up the majority of the total cost of each unit you produce. (Photos.com/Photos.com/Getty Images)

Selling your products involves a long process of obtaining materials, manufacturing goods and placing the items for sale. The last step of the process requires you to do a bit of math. You need to determine a minimum selling price for your products. There are numerous complicated ways to determine this number. But, you, the small business owner, just need the basics. Figure out how much it costs you to make each unit as far as materials and labour are concerned. Then add onto that number incidental costs associated with running your business.

Skill level:
Moderately Challenging

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Instructions

  1. 1

    Determine how much material it takes to make one unit. Look at your records and figure out how much that amount of raw material costs.

  2. 2

    Figure out how much labour cost goes into making one unit. Include handling cost in your warehouse as well as trucking cost into and out of your possession.

  3. 3

    Add the material cost with the labour cost for each unit. This number is the total cost of one unit of stock.

  4. 4

    Multiply the total cost of one unit by 50 per cent to account for rent, utilities, insurance and other incidental business costs associated with making your product. Add this amount to your total cost to get a minimum sale price.

  5. 5

    The number you come up with does not include profit. Add an additional 20 per cent to your minimum to obtain a minimum profitable sales price.

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