Years ago, I took a basic finance course. The prof gave the example of what he called the Widget King.
The Widget King had a company to manufacture an automotive part, The Widget, that was used by every car maker. He had competition but lowered his price below everyone else. That's when he became the King. For a moment...
Turns out that he was selling The Widget below his manufacturing cost; the more he sold, the more he lost. Most of you are not manufacturing your products, but before you set your selling price, do you determine your Cost of Goods Sold (CoGS)?
The components of the CoGS are:
- Cost of acquisition; manufacturing, or buying.
- Cost of inbound shipping.
- Cost of inbound brokerage, duties, taxes.
- Cost of preparation for sale; labeling, boxing, bundling, etc.
- Cost of marketing.
- Cost of outbound shipping; for example shipping to a retailer.
- Third party fees; for example, selling channel fees.
Some components may not apply, and I may have forgotten some, but you need to consider all of these when determining your CoGS. Even if you sell at your CoGS, you are not making a profit; remember that there are sales, and income tax to contend with.
Don't become a Widget King.