A while ago I was asked by a friend to help her develop a pricing model for a product she was importing. My friend knew how valuable a cost to retail spreadsheet could be, so I happily obliged. If you’re an importer or selling locally feel free to access the spreadsheet and make your own cost/profit/markup/retail scenarios.
A spreadsheet like this allows you to create multiple scenarios depending on what you enter as the costs and/or the retail price. For example, you can change the assumptions to get the cost you need based on the desired retail to make the revenue (price x quantity) you’ll need to open/stay in business.
Use the spreadsheet to see the impact on profit:
- for new products
- of changing supply chain costs (either proactively or reactively)
- of different exchange rates
- of changing the wholesale price e.g special pricing.
It’s also good to cross reference the spreadsheet with the actual average margin you’re making to see if the actual costs are in line with budget. And of course it’ll be useful should GST change again.
Most times your costs won’t change too much unless you’re dealing in different currencies. If you are dealing in foreign exchange it pays to use a conservative rate. By doing so your product should be viable even if the exchange rate drops.
The spreadsheet will also allow you to plan the pricing, revenue and margin over a product’s lifecycle. The introductory pricing will probably start higher, then for the next tranche of buyers some added value may be required, and then a lower price as it reaches maturity or even a run out price. By planning your pricing ahead of time the resulting product profitability at the end of the lifecycle won’t be a nasty surprise.
Go 2 Market principle: product profitability needs to be managed. A cost to retail spreadsheet is a must.