Before starting your business creation and launching your marketing strategy, you need to know what the cost of sales is and how to calculate it. This will allow you to make decisions that will define and boost your brand, maximizing your profits and benefits.
The cost of sales will vary depending on the product or service you offer.
Knowing what it is, will allow you to know how many monetary resources you must invest to get your final product or service, thus allowing you to have greater control over your goods and budgets, both Marketing and Sales.
Read on to learn more about it!
What is the cost of sales?
First, you need to know that this term is different from the sale price, since the last one is the cost of sale plus the profit that will be obtained when selling your product or service.
While the cost of sales refers to the expense that the company makes to produce (in total) the products it sells or services provided in a certain period of time.
How does the cost of sales change according to the different types of businesses?
The type of cost of sale varies depending on whether a company is commercial or industrial, since the product or service that each offers goes through different processes, so its cost of sales is different.
In other words, a commercial company does not manufacture a product or service, so its sales process is much shorter, so determining its cost of sales is very simple.
While the process in a manufacturing or industrial company is longer because its product or service is produced, so specifying the amount you spend to sell is different and a little more complicated.
How to calculate the cost of sales?
Now, being companies whose process is different from each other, it goes without saying that the way of calculating the cost of sale varies, leaving the formulas of each one as follows:
Commercial enterprise cost of sales = initial merchandise inventory + purchase cost – final merchandise inventory.
Industrial company cost of sales = initial inventory of finished products + manufacturing cost of finished products in a period – final inventory of finished products.
What elements influence to determine the cost of sales?
To determine the result of the indicator, it is necessary to take into account elements that will influence the calculation and that will depend on whether your company offers products or services.
It should be noted that either of the two will be included, depending on the type of organization, in the formulas in the previous point.
The cost of sales on a product includes:
- the cost of the raw materials that we have used to manufacture or produce said product;
- the cost of storing the products;
- direct and indirect labor costs;
- paperwork expenses (in the case of imported materials);
- depreciation of products;
- transportation costs of the product;
- the taxes that apply in each case.
In the event that your company offers services, the elements that are associated are the following:
- Used materials;
- general fixed expenses (income, salaries, stationery, etc.).
Despite the fact that it seems that less aspects influence the cost of sales of a service, there are companies whose services are very complex, so it should be further evaluated.
The cost of sales calculation provides a global and necessary view to establish that the sale price is in accordance with the expense incurred.
However, you should not forget that the sale price depends largely on your competition and the market, so if you need to lower the price of your product or service, you need to decrease your cost of sales and increase your sales force .
As explained in the article, each product or service we sell will have a specific cost, which will vary according to the necessary raw material, the personnel involved in its production or service provision, the distribution channel used, etc.
Did you like the article and want to continue learning? So, do not hesitate to read our blog on Marketing and Sales , it will be very useful!