Figuring Out Your Economics Of One Unit
Project: Figuring out your economics of one unit
Time needed: minimum 1-2 quarters (3-6 months)
Example
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Definition of unit: One book
Selling price: $11.25
(take the average selling price over a prolonged period)
Cost of goods sold: $1.25
(take the average cost per item of all items sold during this period)
Direct labor per unit: 3 minutes at $20/hr = $1.00
(Calculate the time it takes your to ship books each day for the time period you’ve chosen - use web-based Time Tracker to make it easy and precise. We’re assuming packing and shipping costs only, scouting costs deferred for now)
Materials per unit: Mailer + label = $0.30
Other variable costs (commissions) = $1.69
Gross profit per unit = $7.01
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Now, most of you could probably run this type of basic report today if you assume a figure for your time spent per unit to ship the book. Time spent scouting for books can be difficult to assess. Some people add it to their cost of good sold. For example, if I spent 3 hours scouting and get 100 books, at $20/hr that costs you $0.60 per book. Now, most of you will not actually pay yourself that money directly, but rather through the earnings of your business. That is fine, but you still need to account for your time to get an accurate picture of the cost of each unit in your inventory. Other people place scouting costs into the salary column as a fixed cost. For example, I will work (or hire someone to work) 3 hours a week scouting and then this cost can be factored in with your other fixed costs.
In any event, knowing what your EOU is will give you a much better idea as to the costs of running your online bookselling business. Sure, we can all go to a library book sale and pick up books for $.25 and resell them for $15, but what are the costs behind that and how representative is that of your entire business? Finding out will help you work more efficiently and scout wisely.
