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To be able to estimate if you will be able to make money from your business,
you must find out what the customer is willing to pay for the service or product
you offer.
You also need to find out how much will the product cost you to purchase,
produce or import - estimating cost.
The difference between the two amounts shows how much money you have got left
to pay your rent, telephone, internet access, marketing and your own salary
(profit of firm).
Example of estimating cost
If you sell CDs at $ 25.- on the internet and promote it like this: No
postage and packaging, your calculation could look like this:
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Sales price |
25.00 $. |
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- Purchase price at CD company: |
18.75 $ |
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- Packaging and padded envelope: |
01.00 $. |
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- Postage: |
02.00 $. |
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= Contribution margin: |
03.25 $ (13 %) |
Gross profit
This calculation shows you that each time you sell a CD at 25 $. you have
3.25 $ left.
This has to cover other expenses 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
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Copyright © 2009 Dynamic Business Plan 05-02-2012
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