Pigasus Studio, Colorado Springs, CO, USA

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Cost of Sold

Description

Costs incurred after the sale of a single unit of a single product. These are the costs required to complete a sale. They include, but are not limited to, things such as fees and commissions paid to sales channels and payment gateways along with getting unit from the business to the customer.

This is one of the most problematic expenses to try to pre-calculate.

As an example, let’s sell a $200 unit via an online sales channel and utilizing a payment gateway for accepting credit cards. Upon sale:

The sales channel charges 15% commission on the sales price. $30.00
The payment gateway charges a $0.50 flat fee per sale plus a 3% rate on successful charges, so $0.50 + $6.00. $6.50
You need to ship* the product to your customer, at a rate of $12.00. You also need to package it first, for $2.00 worth of packing supplies. And you have some items you include in every shipment — such as business card, flyer, and maybe a coupon, — totaling $1.00 in additional costs. $12.00 + $2.00 + $1.00. $15.00
Cost of Sold Total $51.50

“Suddenly”, there’s an additional $51.50 that’s taken from whatever portion of the sale we thought would be profit.

* (NOTE: whether or not to included shipping-related costs in the List Price calculations is not always a simple decision. Learn More.)

So you decide you want to recoup these costs by increasing your sales price.

Initial Sales Price $200.00
Initial Cost of Sold $51.50
New Sales Price $251.50
New Cost of Sold = $37.73 (15% ) + $0.50 + $7.55 (3%) + $15.00 $60.78
New Unrecouped Difference in Cost of Sold = $60.78 – $51.50 $9.28

You could turn around and add that $9.28 difference back into the sales price, but then the charges also go up again. Round and round you go until you find a comfortable stopping point.

Or decide to sell only in person and only take cash.

Or elect to lose money on this aspect (which can be deducted on taxes as a business expense, but is a tax deduction really the same as not losing money on a sale? I think not. You might think differently.)

NOTE: You can likely safely ignore all or portions of Cost of Sold and the contribution made to the suggested pricing IF your customer is:

  • buying from you in person (thus avoiding sales channel charges),
  • AND/OR paying cash (thus avoiding payment gateway charges),
  • AND/OR paying shipping as a separate line item OR taking the product with them.

NOTE: This example only deals with sales channel, payment gateway, and shipping-related expenses. What about all the other potential expenses incurred once an item is sold? Below are some to think about.

Category Area Type Name Description LearnMore
Business Direct Cost Cost of Sold Offsite Ad Fees Some sales channels charge an "Offsite Ad Fee", such as 12-15%, upon sale of an item. Because this is only charged when an single unit of a single product sells, it can be attributed to the cost of this item if you elect to track it to the individual unit of a specific product. Alternately, you can lump these costs under Indirect Cost / Overhead, Administrative as advertising or marketing costs.
Business Direct Cost Cost of Sold Packaging, Non-Integral Packaging required to get the right product to the right customer. e.g. box, box filler (peanuts, air bags, etc.), packing slip printout, invoice printout, shipping label printout
Business Direct Cost Cost of Sold Packing Add-Ons, Integral to Product Instructions, product information, etc. that your customer needs in order to properly utilize the product.
Business Direct Cost Cost of Sold Packing Add-Ons, Non-Integral Incidental additional items you include in shipments of this product, or shipments in general. e.g. Logo sticker, free sample, bonus material, catalog, etc. NOTE: these might be considered marketing, and if so more likely fall under Indirect Costs / Overhead, Administrative than here.
Business Direct Cost Cost of Sold Payment Gateway, Fee on Sale Some payment gateways charge a flat fee per sale. e.g. Payment Gateway X charges $0.30 flat fee per sale, plus 2.9% of the sale price; Include that $0.30 flat fee here.
Business Direct Cost Cost of Sold Payment Gateway, Percentage on Sale Some payment gateways charge a percentage fee per sale. e.g. Payment Gateway X charges $0.30 flat fee per sale, plus 2.9% of the sale price; Include that 2.9% fee here. This gets tricky if you're wanting to include this in the price of your product before putting it for sale -- as you add the fee cost to the price, the price goes up, in turn the fee will go up. Just make stab at it and at least you'll have recouped the bulk of the fee.
Business Direct Cost Cost of Sold Sales Channel, Fee on Sale Some sales channels charge a flat fee per sale. e.g. Sales Channel Y charges $0.50 flat fee per sale, plus 3.5% of the sale price; Include that $0.50 flat fee here.
Business Direct Cost Cost of Sold Sales Channel, Percentage on Sale Some sales channels charge a percentage fee per sale. e.g. Sales Channel Y charges $0.50 flat fee per sale, plus 3.5% of the sale price; Include that 3.59% fee here. This gets tricky if you're wanting to include this in the price of your product before putting it for sale -- as you add the fee cost to the price, the price goes up, in turn the fee will go up. Just make stab at it and at least you'll have recouped the bulk of the fee.
Business Direct Cost Cost of Sold Shipping OUT, Included in Cost Actual shipping costs to get the product to your customer, per unit of product. NOTE: DO NOT add anything here if you are either (a) charging shipping as a separate fee paid directly by your customer (because that would then be a separate invoice item), or (b) actually eating the cost of shipping the product to your customer (in which case that would come out of your profits but would not be recouped in any way).
Business Direct Cost Cost of Sold xTra, Other Actual Sale Cost Other 'Actual Sale'-related costs for one unit of one finished product not otherwise included above.