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Estimating Cost

To ensure you are not losing money on your operation you must estimate the cost of your product or service.

To be able to estimate how much money you can to make from sale of your product, you must find out what the customer is willing to pay for your product.

You also need to find out how much the product will cost you to purchase, produce or import.

The difference between the two amounts shows how much money you will have left to pay your rent, telephone, internet access, marketing and your own salary (or the profit of firm).

Example of estimating cost

If you sell CDs at $25 on the internet and promote it as “No postage & packaging”, your calculation could look like this:

Sales price 25.00 $.
- Purchase price at CD company: 18.75 $
- Packaging and padded envelope: 01.00 $.
- Postage: 02.00 $.
= Contribution margin: 03.25 $ (13 %)

Contribution margin

This calculation shows you that each time you sell a CD at $25. You will have $3.25 left. This has to cover expenses other than those related directly to purchasing, packing and dispatching the CD.

This amount is also called the contribution margin or gross profit.

Go to next business issue: Pricing - The Market


Success usually comes to those who are too busy to be looking for it.
- Henry David Thoreau, American author, poet, philosophe

Be Specific About Your Product
What is a business model
Business Canvas
Different from your competitors?
How to Make an Elevator Pitch
Pricing - Focus on Expenses
Value for Your Customer
Realistic Number of Customers
Product Lifespan
Pricing - Market in Focus
Estimating Cost
How Much Stock Do You Need
Business Policy
Organising the Company
Your Product / Service
Financing Start-up
Sales and Marketing
The Person Behind
Entrepreneurship Education