Fishbowl CMO Kirk Tanner is back with another installment of Fishbowl’s Whiteboard Wednesday. Last time he explained how to improve your business processes, and this time he addresses the important topic of calculating the true cost of goods.
The trouble with calculating the cost of goods is that prices may change over time, so you need to be consistent in your accounting method. You can choose from FIFO, LIFO, Average Cost, and Standard Cost. The important thing is to stick with one because each one calculates costs differently.
Then you need to factor in Landed Costs, which can include taxes, shipping costs, operating expenses, and risk management. And there are plenty of other things to take into consideration when figuring out how much your goods actually cost.
It’s well worth the effort because all of this math will help you set appropriate prices on your products to generate a healthy profit margin.