Advice needed re pricing goods for profit.

yallapilko

Hi,
Can you help?
I'm not so savvy at accounting, so need help, as I'm new at this.
How do I price up goods for sale? I'm going to sell some clothes online.

Say for example if my stock costs £10, in order to make a profit, how do I know what to charge my customers for a profit after tax, national insurance and other stuff I've not thought of? (bearing in mind also the competitions prices of course).
Is there some basic formula?

I know this is a really basic question and I'd be most grateful for your help.
I have to start somewhere!!!!!!
Thanks in advance.

rharper83

I wouldn't mind knowing this too.... I can guess, but how do you work out the exact break-even point when factoring in tax etc?

so.. *bump*

WHA

It depends on what your overheads are, such as professional fees, bank charges, administration, property, postage, etc.

If you are turning over alot of items, you can work to a relatively small profit as the overheads are spread over more items. Conversely, if the quantities you are selling are smaller, then you need to make more profit on each item and the overheads are spread over a smaller number of items.

As a general rule of thumb, if you are into "pile it high and sell it cheap", a mark up of say 25% is probably OK - i.e. buy for £10, sell for £12.50 - a gross profit of 20%.

But if you are planning to see fewer items you need to be looking at a mark up of more like 100%, i.e. buy for £50, sell for £100 - a gross profit of 50%.

As I say, it all depends on your overheads.

As for tax, there is no simple formula. It depends on the amount of profits overall, and can be zero if you don't make much profit, rising through basic rate at say 31% of profit through to a high of 41% of profit if your profits put you in higher rate tax.

yallapilko

Thanks for that for a start.
I think I'm needing in addition to this, some sort of equation or list of stuff where I can input data.
Has anyone one of you business people got something like that?

skippy64

As a rough rule I divide the unit cost by 4 & then multiply it by 6. I then add that new figure to the original unit cost and round it up to a sensible unit price e.g. if it comes out at £17.73, I'll make it £17.99. I know it sounds long winded but it works for me.:)

yallapilko

Thank you! That sounds good. To help me out can you explain something for me. I'm trying to get to the logic behind stuff too.... So can you tell my why you divide by 4 then multiply by 6....... why not by 5 and multiply by 7 for example..... !!! What is the reasoning behind it.... ??????

Also, is it the direct cost per unit unit before you add on overheads such as utilities and rent per unit etc? Or is it just the cost you purchased for?

Thanks for your patience!

skippy64

It all stems back to when first setting up & speaking to my accountant. He suggested a gross profit ratio for my style of business to give me what would be a starting point for a selling price. You are right to point out you could do any calculation you want, its something I use just as a final check that I'm not going to sell something to cheaply. I don't see the point in undervaluing or underselling myself with the products that I sell.
I find that once I have done the pricing exercise I usually look at all the running costs of my business to see if everything is still 'hunky dory'. Another thing he told me was thats always stuck with me is ' Turnover is vanity, its Profit that is sanity ':rotfl:

yallapilko

Thanks for that!

windswept

for retail goods it's usually double the trade price + vat.
for the stuff I sell anyway, my best seller is £4.50 trade +vat, I sell it at £11.50.
it's variable though, we have found to our cost that the mark up on die cast models is atrocious! e.g. we buy at £20, they retail at £30, so it's not worth putting them on ebay because of all the fees. we have sold half our stock of models at toy fairs and haven't broken even yet!

WhiteLily_2

In retail most people mark up 2.35 times the cost price (works out same as windswept), however, at the end of the day charge above this if you feel it will sell at the higher price. Also agree with Skippy's accountant - it doesn't matter how much turnover you are making - it's the gross margin and profit that's the important figure.

COOLTRIKERCHICK

what are your competitiors putting these clothes out at ?

as if you feel you are going to be competing with them....it is worth keeping an eye on their prices....

they might have the attitude of putting smaller mark ups on the clothes .. just to shift them quicker... ready for the next fashion trend...

bar in mind that the turn over of fashion on the high street is approx 6 weeks...so basically something could be hip and trendy one minute ... and then it is so 'last year' the next......

bare this in mind......unless they are classic faithfulls ..and not the height of a fashion trend.....

also might be worth you talking to a local government run... group.. which helps new business start ups.. you never know you might be intitled to start up grants.... etc..

this is what i am doing now......and they give constructive advice..... and they will help you work out how much you need to be earning to cover overheads etc.....


good luck ......