Markup material cost on startup


1

I was in a debate recently with someone on how we should go about pricing out our material costs to clients and we couldn't decide on what is the proper way in going about doing this.

Example:

If a sheet of material, 4' x 8', costs us $100.00 what should we sell it for? If we offer that material cut down to as low as 1' x 1' how should we go about pricing it? Does it make a difference that we are starting and should we markup annually if we offer the material at a discounted rate?

From my understanding and what I have scene material cost should always be times by three:

  1. Cost of material
  2. Profit
  3. Equipment
If we are just selling the material to the client how should our price point go? I was thinking that anything we can sell, sheet wise, that would leave us with no waste should be marked up by 2.5. Anything that would leave us below wholesale price should be times by 3 and anything that would leave us with half of leftovers should be marked. So if a client buys 4' x 4' of material we should mark it up by 3. By any chance is there a calculator or guide for this?

I know hourly rate plays a different part but at this time we have no overhead and I am running the company out of my home in the basement for a couple of years till business is steady and I can do it full time.

Startup Costs Cost

asked May 5 '13 at 12:34
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Matt 2.0
188 points

2 Answers


2

  • You must never calculate prices from the cost of materials.
  • You must always attempt to, as best possible, calculate prices from the end user's benefit in using the product.
Niel Ferguson, a highly successful entrepreneur, has written a really excellent free ebook called "Don’t just roll the dice: a usefully short guide to software pricing". I highly recommend it as a good introduction to how to set prices, both for software and physical goods.
answered May 5 '13 at 18:46
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Jesper Mortensen
15,292 points
  • This. So much. If you're entering a market where you are solely competing on price - not value - you're going to have a tough time. – Adrian Howard 7 years ago

2

Price per unit on its own is meaningless - what about all your running costs?

You can't even begin to calculate your cost and sale price without factoring in all your static costs including staff costs - if marking something up by 2.5 and selling 100 a week means you don't break even overall regardless of how much you made on each unit relative to its purchase price then you either need to sell more, lower your costs or increase your price.

answered May 5 '13 at 20:09
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Bhttoan
735 points

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