Friday, November 7, 2008

Costing and Pricing Navigational Tips Part 2

So let’s get down to the nitty-gritty, and start to run through a formula you can use for costing product inputs. We’ll look at one thing today – working out your pay rate.

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First in costing your products you need to have an idea of what your hourly pay is going to be. This is often your biggest cost – by far – when any amount of handwork is involved, be it hand-crafting a piece of jewelry, a novel or a marketing plan.

There are several ways you can figure out a pay rate:

What are your paper qualifications? For instance, if you have a Degree, what do Degreed employees earn?
Or what other skilled job would you equate yours with?

There will be a range of places you can call to get an idea pay rates for these:
Public Service Commission
Employers’ Federation/Organization
Labour Office
Unions
Chamber of Commerce
Employment Agencies

Or, you can look at it from the viewpoint we covered in the What's Your Worth post: What do you need to earn to cover your essential cost of living / live well and securely / fulfil your dreams?

Once you have a pay rate that you are happy with, it helps to work out what that will be per day and per hour, and there are a few ways you can look at it:

If you’re anything like me you work a 7 day week about 10-14 hrs a day, but that may not mean you want to use that number days and hours to calculate your pay. I think it’s better to assume you work a normal work week and that would put you in the range of 8-10 hrs a day.

A normal workweek would then be 5-5 ½ days = 40 – 55 hrs per week.

Then look at how many weeks you work in a year – 52? We’re just working too hard! Let’s pretend we take a normal holiday of 2 - 4 weeks, which would mean:

A normal workyear would be 48 – 50 weeks.

Taking this into consideration is not so vital to costing your products, it’s more a reminder to do so if you are doing a costing based on the Living Your Dreams method, because during your holidays, you won’t be working, so you can’t include this time as billable hours. If you are employed, your salary continues to get paid by your employer in this case that would be you paying yourself, so you have to allow income from your productive time to cover your holiday time.


Working it Out

Lets use the figure from the Matchmaking Ins and Outs post – $67,200 per year.

We’re going to work 50 weeks per year so our weekly wage will be $1,344 per week.

And we’re working 45 hrs a week, so our hourly pay will be $29.87 per hour - $30 is easier (always round up). Pretty simple.

If you got information on equivalent pay scales and it was given as a monthly amount – say $5,000 per month – you break it down to hours like this:

5,000 x 12 / 50 = $1,200 per week, divided by 45 hours per week = $26.67 - $27. Note we still used 50 work weeks because although you took a rate from an Employee job, you are still paying yourself here and earning that pay only from your productive time – 50 weeks.

From here we’ll look at listing all the things that need to go into a product costing and then look at ways to work the figures.

Prep Yourself

You can start a list of the things you use in making one or two of your products and go through the next part using your own figures as well.