Calculating Your Total Cost Per Unit
When it comes to your bottom line, you need to be aware of how all of your costs cumulatively influence your pricing, or cost per unit (CPU) to receive the most benefit. Today, we’ll discuss how your shipping and fulfillment rates affect your CPU when selling to major retailers and, therefore, your profit margins, through a small case study.
We have a client who wanted to know exactly what her shipping and fulfillment costs looked like as she was shipping her items to a large grocery chain. After getting her foot in the door, her goal was to scale her business so that shipping and fulfillment was not only advantageous where her side of the process was concerned, but also for her bottom line. While the grocery chain was ordering small quantities per store, this raised our client’s handling and shipping costs based on her CPU. Our client was responsible at her expense to cover shipping. Originally happy to sell a few items here and there to get her name out – she was now at a point where she could request a greater shelf presence and therefore ship a larger quantity of items.
Configure Our Products Into Inner & Outer Cartons
After analyzing her costs, we found that she could actually save on the CPU by standardizing her inner carton and master carton quantities. Since she typically sold 6 units per SKU, we recommended her inner cartons be based on that quantity. With this, her handling costs were reduced and the shipping costs became more predictive.
This allowed our client to view her overall costs for fulfillment and shipping, find an average cost for the entire process, and build that fee into her pricing.
But wait, there’s more! We broke down the costs of her selling 18 units at a time versus 36 and 72 units in an Excel spreadsheet, detailing the costs for handling and shipping. We found that the more she shipped, her costs lowered because her variable expense became a larger percent of her fixed cost. In other words, she could sell more for less.
Now, our client knows exactly what her CPU should be to not only benefit her bottom line, but also her customer. We couldn’t be more excited for her and her company!
We are passionate about e-commerce because we know small businesses need to be hyper aware of their costs not only so they spend wisely, but also because when you have your financials in order, you will have a fantastic portfolio when pitching investors.
Thank you for spending time with us today. If you have any other questions, feel free to reach out at email@example.com.