Workshop
If you want to get into the business of making things, it’s useful to know some ballpark figures for the cost of production. This varies, of course – a lot. It depends on a host of factors including where you make your product, the quality of materials chosen and the scale of production, with costs coming down as quantities go up.
This is a look at production costs for a few physical products to give you a sense of what they look like in different categories. No two supply chains look (or cost) the same, so these examples are not necessarily representative, but they do shine a light on what costs are for at least one company in that sector.
What's included
In our breakdown, we’ve included the key cost categories associated with manufacturing and distributing the product: materials, manufacturing (including labour costs) and shipping (including import duties).
What's not included
These figures don’t include company-specific overhead costs related to running the business, such as rent of premises, salaries or marketing costs.
1. A box of organic cereal made in North America
OffLimits is an indie cereal brand (that we looked at on page 50) that uses high-quality organic ingredients for its cereals. The prices for these can vary depending on the global markets. As a small business, OffLimits pays higher rates for things like manufacturing and shipping as it hasn’t yet achieved the scale of bigger players in the industry.
2. A handmade ceramic mug made in North America
Jono Pandolfi is a US-based ceramics company that makes dinnerware for the hospitality industry. There are more than 16 steps that go into the brand’s handmade products – from rolling and forming to glazing and firing each piece – carried out by a team of seven artisans working in a studio in Union City, New Jersey.
3. A pair of denim jeans made in Asia
American fashion brand Everlane produces its clothing at factories across the world. For this example, we focus on its men’s ‘Slim 4-Way Stretch Organic Jean’ – made from organic cotton at a denim factory in Biên Hòa, Vietnam, which uses renewable energy and air drying to reduce its greenhouse gas emissions by 80%.
4. A pair of leather sneakers made in Europe
Launched in 2016, Oliver Cabell is an indie footwear brand that’s based in the US but manufactures in Europe. All the key materials used for the company’s Low 1 sneakers (from the calfskin leather uppers and lining to the cotton laces) are sourced from Italy, where the shoe is also cut, sewn, and constructed by hand.
5. A wooden coffee table made in Asia
IUIGA is a Singapore-based retailer that sells a wide variety of thoughtfully designed home goods – everything from cookware to wall art – manufactured at factories that produce for well-known international brands. The retailer’s furniture — including its coffee table made of oak and rattan – is made in Southeast Asia.
Useful terms to know
Fixed costs. These are costs that don’t change, no matter how many units you produce. Equipment and rent tend to be fixed as you’ll likely be paying the same whether you’re making 100 units or 1,000.
Variable costs. These are costs that change, often directly proportionally, depending on the volume of how much you’re producing. So, costs for materials and labour tend to be variable because if you want to produce more units, you need more materials and hours of labour.
Unit costs. Your unit cost is the total cost to produce one unit of your product. Calculate it by adding your total fixed costs and total variable costs and then dividing the result by the number of units you produced.
Product margins. This is the difference between the selling price of the product and the unit costs of the product (which includes all costs associated with producing it). If this isn’t a positive number, you’re in some trouble.
This article was first published in Courier issue 39, February/March 2021. To purchase the issue or become a subscriber, head to our webshop.
