Costing Tips And Tricks

[BDAZ]

I am in the process of launching the wholesale side of the business and consequently need to sharpen my pencil and make sure my costing is as accurate as possible. I have included every aspect of producing each item in it's costing model including finish, oils, masking tape, paper, thread, hardware and all other consumables.

The only problem I have is leather, which I obtain from a few different sources at differing prices. I know how many square inches each product takes but I have no idea how to cost the actual yield from a hide, nor which are the most economical cuts in terms of best yield.

Are there any rules of thumb or other tricks that can be used to obtain the maximum yield from a hide and then determine the resulting cost per square inch of the usable pieces.

I need to make sure my wholesale pricing is keen but profitable and I cant do that without accurate leather costs..

Thanks!

Bob

[DavidL]

I don't have anything for sale yet so take my words with a grain of salt. My opinion is I would calculate average amount of product X that can be cut from a 20 foot hide ($90). Take the total and divide by Quantity of product X. Do the same for thread and dye the same way as it is done for leather and you can find out how much it truly cost for each product. Take into account the percentage paypal takes and the websites slice of your sales. Then include the mark up which should be at minimum 100 percent to recover costs of leather thread and supplies you had to bulk up on to get discounts. After you break even its up to you to decided if you want to go higher volume at 75 percent mark up and so on.

90 dollars divided by 20 wallets= $4.5 wallet cost

15 dollar thread divided by 250 completed wallets = 7.5 cents

28 dollar dye divided by 100 = 28 cents

Shipping packages, bubble wrap also should be calculated

= 4.85 total cost plus mark up 4.85 = $10.7 selling price can be tweaked to 15, 20, 25 depending on how good the end product will be

If your start up is $2000. Divided 2000 by 10.7 to find your break even point - 197 wallets to break even.

Whole sides are always good or single bends(only the back, not the shoulder or belly)

Your tools and machinery(if any) and maybe your supplies can be put on your business tax return if you are registered as a business owner.

If you already know this then I suppose its good review. Good luck.

Edited May 8, 2014 by DavidL

[BDAZ]

I have been manufacturing scuba products for many years and also produce wide format graphics in another business, and soy based solvents in another, so I didn't just fall off the turnip truck.

The problem is that when I buy a 55 gallon drum of chemicals, I know that I'll have 3% wastage and the net amount will yield x products and x cost per bottle. The problem with leather is that each hide is different and with the range of products required, I am not really sure how many of each product I can get from a hide. If I had an order for 500 widgets, then I could probably use a greater percentage of the hide, but having an order for 5 or ten at a time, I'm guessing I have a 20% to 25% waste. For example I needed a 9" x 20" piece but was only able to get 9x19 so that almost piece is waste. I may eventually be able to use a part of it but chances are 50% of that piece would end up in the scrap heap.

For example, I can buy a side from Tandy at $6 a square foot. Assume 20% waste, it's now up to $8 IF I can get 100% use of the remaining leather. So that wasted piece was 1.25 square feet and cost me $10.

Surely there are some basic guidelines for costing leather commercial without getting into the world of computer controlled laser cutters?

And I am not concerned about retail as there is a lot more wiggle room for margins and I am not sure I am even interested in retail, but when my wholesale customers mark up the product 60% -100% then I have to have solid numbers to establish the lowest possible price while still remaining viable.

Cya!

Bob

[RavenAus]

One figure I saw was to allow 15% per hide as wastage so for your 20ft hide you'd have a working size of 17ft

[BDAZ]

This system may result in 15% waste:

http://www.expertsystemtechnik.de/reduce-material-waste-significantly-using-the-expert-scanning-method

Great video!

I'm way higher than that, in terms of the pieces I need for my products. I read a UN report on the shoe industry that stated the minimum wastage was 18% and often exceeds 25% and as high as 60% for premium products.

Cya!

Bob

[RiverCity]

On the cases I make, I can get 2 sets of blanks out of a back. I dont even figure the waste, I split the cost of the leather ( a back costs me about 150-160, so I figure the leather cost per case at half of that), add other materials, hardware, and packaging materials etc and that is the product cost. From there I roughly estimate the time it takes me to produce it and do the math with an hourly rate I have set for myself. Add the labor on and that is my retail.

I dont know exactly how many wallets you can cut from a side, so my example is for explanation purposes only. Say you buy a back of veg tan, and a big piece of lining/pocket leather. Total cost is say 200. You have enough leather to produce say 20 wallets with scraps left over. Your leather cost is 10 dollars per wallet. That should be the figure you use in your cost of materials. Not the .50 a square inch or whatever, yada yada yada.

IMO after 25 years of working in retail management, you can worry about shrink as much as you want. But is you consider shrink as a percent of sales, the best way to manage your shrink dollars is to increase your sales. As long as you are not being purposely wasteful, you should be fine. Then every so often, go through the scrap bin, and see if you can make any additional sales from the leather thats there. One of my biggest shrink busters is dog collars. Quick and easy for a basic collar. Dont jump over dollars to save nickels.

Chuck

[BDAZ]

Do you sell wholesale? Assuming $80 a case fr leather and another $20 for other consumables plus $80 labor and $20 overheads your wholesale would be $400 resulting is a retail of +-$800.

From your website (beautiful cases, lovely work) I see your retail price is around what the wholesale price would be thus either your retail pricing is way low based on the market, or you would be priced out of three tier distribution.

After checking pool cue distributors, the highest price I can find is $499, clearly well below the $800 your products would have to sell for to achieve your formula.

Thanks!

Cya!

Bob

Edited May 8, 2014 by BDAZ

[cgleathercraft]

Dont jump over dollars to save nickels.

This is probably the best bit of lots of really good advice I've seen here on pricing/costing.

I tend to worry about scrap and loss, but i'm just a hobbyist right now. I pull from the scrap pile if a piece suits the need before I make a fresh cut into a side or shoulder. If your concerned with scrap losing you money then put it up for sale here or on ebay. Someone will take it off your hands for the right price and will help the bottom line a lot.

I'm a programmer and have 3 years of background in supply chain from a previous job. Many thousands of dollars in scrap are wasted by large companies. I've considered putting together a calculator of sorts to handle inventory similar to what I programmed before. Just haven't got around to it yet. If there is some interest in it i'll start developing it.

[BDAZ]

There seems to be a dearth of folks that actually run some form of leather business where they sell multiple copies of an item to a distributor that resells to the end user. It seems that most of the folks here are on Etsy or have a retail operation where they are dealing directly with the public, either in person or online. Lots of wiggle room when dealing direct with the consumer. Issues like making sure the picture in the catalog matches the item you deliver 6 months later don't apply. Also one has to be more efficient in time and materials to allow for the re-seller's margin.

So I guess I'll using some templates, try to estimate how many items I can produce for a side and then figure the cost per square inch. (Each case requires around 2 ft2) or simply use a thumbsuck 25% waste to determine the approximate cost per square inch and run from there.

I was hoping there was some rule of thumb, but I guess the great variation in leather production, from shoes and wallets to auto upholstery makes that impossible and other than spending $350,000 on a full hide scanner and laser cutter, I'll just use my pencil.

Thanks,

Bob

Thanks!

Bob

[RiverCity]

Do you sell wholesale? Assuming $80 a case fr leather and another $20 for other consumables plus $80 labor and $20 overheads your wholesale would be $400 resulting is a retail of +-$800.

From your website (beautiful cases, lovely work) I see your retail price is around what the wholesale price would be thus either your retail pricing is way low based on the market, or you would be priced out of three tier distribution.

After checking pool cue distributors, the highest price I can find is $499, clearly well below the $800 your products would have to sell for to achieve your formula.

Thanks!

Cya!

Bob

No, I dont wholesale, and Im not sure where you are getting your made up numbers about what my wholesale and retail SHOULD be, youre wrong though.

Tried to help you figure your cost, but you seem to know it all, so good luck in your ventures.

Chuck