Query on product pricing

bbam

Hi guys..
I've had a business idea going round in my head for a while now and recently started developing the idea and researching it..

My query is regarding developing a product price... It will involve purchasing a few €K's of equipment. At my volumes I'd expect minimum 5 years performance from the equipment.

So how do I include the price of the equipment into the product price??

I was looking at dividing my projected units over 5 years into the cost of the equipment and using this as a starting point of the costing of the product. Does that make sense?

Peterdalkey

Depreciation of your equipment is indeed part of your product cost build, however all your other overheads and raw materials are also part of that final number. Generally the only variables are materials, energy and direct labour if you have flexible employemt in place, most of your other costs are fixed, irrespective of how many units you produce. The actual final cost of the item will greatly depend upon how many you make per hour/day.
The easiest way to cost out production is to calculate the gross hourly fixed costs and then add on the variable unit costs.

Cheers

Peter

CompanyBureau

I would try and price in repayment of the equipment over 3 years if possible, assuming that doesn't make your prices overly uncompetitive. Best of luck with it!

bbam

Thanks lads.
Just want to make sure if I do go ahead that's it's a sustainable business rather than just being a busy fool.
I'll look into three year timeframe too. Might be prudent.

SeanSouth

The price comes from the MARKET, no where else.

Voltex

SeanSouth wrote: »

The price comes from the MARKET, no where else.

Thank God. I used to think I was the only one who thought like this.
OP...with perfect knowledge, the market will decide the price of your goods or services!