Don’t Forget Overhead When Pricing Your Products

Overhead costs are those fixed expenses that you have to pay no matter how much you create or sell.  These fixed expenses are often overlooked when sellers determine the prices for their products or services. Unfortunately, when you forget to take your overhead costs into consideration, it can really take a bite out of your profits! Here are some of the more easily identifiable overhead costs you should include in your prices:

1) Transportation

If you use a car or van to deliver your products or even to pick up your supplies, then your gas is an overhead expense you’ll need to compute.

2) Office supplies

All the office supplies needed to run your business are also considered overhead expenses. This includes letterhead stationery, envelopes, pens, business cards, printer cartridges, computer paper and even software.

3) Packaging and shipping materials

Don’t forget the little things you use for packaging and shipping your items that also need to be added into the equation. This includes your packing tape, boxes, bags, labels, bubble wrap, tissues and stamps.

4) Rent

You may feel that your business is rent-free if you are working from home, but that really isn’t the case. You are using a specific portion of your living space so your business should pay for a specific percentage of your monthly rent or mortgage payment.

5) Utilities

Lights, heat, air conditioning, and water are some of the utilities that need to be included in your pricing. If you are involved in a craft that uses up a lot of electricity, then you need to take this into consideration when figuring out your overhead costs.

6) Equipment

The various equipment and tools you use for your business are considered an investment. Maintenance, repair and even replacement of these items should also be considered.

7) Phone bill

Do you have a separate phone line for your business? If the answer is no, then you need to estimate the number of incoming and outgoing business calls you make. If you make or take long distance calls, be sure to add this into your total.

Overhead costs are usually measured over a specific period of time, such as a year. If you’ve been selling for quite some time, you can easily estimate such costs based on your expenses from previous years. If you are just getting started, however, you will need to make an educated guess.  It may seem a tedious task to keep track of your overhead expenses, especially if you are managing a home business. However, if you truly want to be profitable, then you must make more than what you spend.

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