Hey Makers, it's Charlotte with the Wooden Wick Co. Today, I'm going to be teaching you how
to determine what your cost of goods sold are. If you're not familiar with your cost of goods
sold or your COGS. This is an important metric to understand if you're selling your product.
Your cost of goods sold is going to give you a baseline for what all of your components cost
that go into the product that you're selling. For example, if you're selling a candle you'll have a
vessel, wax, wick, wick sticker, wick clip, the list goes on and on. If you're selling soap, you want
to account for your soap base, your fragrance, your additives, there's a lot that goes into it. So I'm
going to show you guys exactly my process today so that you can use the same formula to identify your
cost of goods and then in turn you can use that to determine your selling price for your product.
So join me on a little adventure and I'll show you guys how to figure out what your cost of goods is.
Okay, so in today's example I am going to use a candle as the product that we are making. So, if
you're making many different candles in different fragrances you want to go through this process
for each different product that you're using. And yes, that means every single fragrance you need
to identify what your cost is for each candle. So, first we're going to start with the basics.
You are going to need a vessel of some sort, you're going to need wax, you're going to use
fragrance. I just generally start with the basics and then I fill it in from there.
So this will probably look really similar to what you guys will use for your cost of goods.
You might have some packaging that you're putting into your product or you're using
to package your product and you want to include that as well. You want to include
a labor cost so even if you're making all of your candles in the beginning, at some point someone
else may be making those candles and you want to attribute that labor cost into your product.
You can always go down in price, but it's a lot harder to raise your prices once you have an
established customer base. So build that labor into your product now. And if you want to offer free
shipping that's something that you can account for in your cost of goods as well, but we'll just
start with these basics. So typically, I will list the components that are going into the product.
I'm going to create a section that says the quantity, how much I'm using of it, and then
the cost for it. So i'm going to add all of those together obviously to get my final cost. So
we'll base this on some of the main Wooden Wick Co. components. So let's say you're making a product
with our aura vessel and you're going to obviously use one of those and those cost $4.95 each. There's
also bulk discounts for them, but let's assume you're just starting out and you're buying them
at the minimum order quantity maybe you're just buying a few of them.
Next, we're going to determine how much wax we're using so the aura vessel is a 13 ounce
vessel and let's make the assumption that we're going to use 10 percent fragrance in it okay. So if
we're using 10% fragrance, follow my math, we have a 13 ounce vessel and 10% of that formula is going to
be fragrance and 90% of that formula is going to be wax. So I'm going to use 11.7 ounces of
wax in this candle and if you are purchasing our virgin coconut soy that is $14.95
divided by 5 pounds. Now I have it's $2.99 per pound, okay so let's start with that I have $2.99 per pound.
And now, I actually need to divide that again by 16 to get my cost per ounce, which is now 19 cents.
And I'm going to multiply 19 cents times 11.7 and my total cost for wax is $2.19.
Now, let's move on to the fragrance oil so you can kind of follow that same formula. So you're going
to use 13 ounces, that's how big the candle fill is times you're going to go times ten percent.
Okay so we're gonna have 1.3 ounces of fragrance,
and then let's follow that same formula again. So let's assume the fragrance oil cost $38.95
for a 16 ounce. So I'm going to divide that by 16 to get my price per ounce.
And then I'm going to multiply that times 1.3 that's how many ounces I'm using in the candle.
And let's see if I can't get this math right.
38.95 divided by 16, let's start with that.
Maybe it doesn't like my dollar sign, 38.95 divided by 16 times 1.3 so we have
$3.16 worth of fragrance oil in this candle. Wick obviously you're just going to
need one of those. I'll just throw in kind of a general cost. Let's assume your wick costs 20 cents,
you need one wick clip let's assume your wick clip costs seven cents, you need a wick sticker
I believe that's 12 cents. Packaging this can include multiple different
things, so actually for the sake of this example let's split it out into
different products. So let's say you have a front label, and you have your safety label,
and then let's assume you also are going to use a box for your candle. So we'll just say candle box.
So your front label i'm just gonna put in costs that are made up right now, but obviously you
would put in your final costs. If you want to use what's called your landed costs, that means
it's going to include your shipping cost and any costs that are associated with getting it to your
door as well. So that really helps you look at everything that's going into the cost of making
this product. If you're buying on woodenwick.com, we have free shipping over $99, which is really
nice because you don't have to add additional shipping costs and build those into the cost of
your product. So again just making this up, let's say our front label costs 20 cents, let's say our
warning label cost 10 cents, and our candle box, let's say our candle box cost $3.95.
Lastly, our labor. This is one that is always talked about very frequently. So for our labor
we're going to base it off what we call a time study. So basically you want to determine
how many candles you can make in a period of time and then what's an appropriate wage to pay
for that amount of time as well. So I always like to encourage people to base it off if they were
hiring someone else to make the candles. Again thinking forward, if you expand your business
and you add people to your team you don't want to have to change your costs. So
let's assume you're going to pay someone $15 an hour to make candles for you. So we'll use that
as a metric. And again you would want to perform a time study. Let's say you spend or
you track how much time it takes you to make 50 candles and to make 50 candles you may determine
that takes you 90 minutes. Okay so we'll just go with these numbers that i'm making up here. So
it's going to take me 90 minutes to make 50 candles. So 90 divided by 50 it's going
to take me 1.8 minutes to make each candle and then I'm going to - I'm going to multiply that
times $15 an hour. So I have to figure out how much cost per minute right. So i'm going to go $15
divided by 60 and that's going to add 45 cents of labor cost onto my candle. So I'll just double
check my math there. We have 90 candles that we made in 50 minutes so we're figuring out in this
part of the formula how many minutes it takes us to make each candle and then we're multiplying
that times our labor cost which we're paying $15 an hour divided by 60 minutes so we can determine
your labor cost per minute and we're multiplying those two things together.
So finally assuming that my shipping costs are already built into this or
I'm getting free shipping, I'm going to get a final price now for what this candle cost
me to make. So the total cost for this candle that I put together is $15.39.
This is pretty normal for candle utilizing nice packaging luxury fragrance oil and
a unique high quality vessel. Your costs are probably going to fall somewhere between $12 to $16,
if that is the audience that you're targeting. And then if you plan to sell
wholesale you basically want to multiply that cost times three to four for your retail cost.
Wholesalers expect typically to have a 50% discount on the products that you're selling
them. So for this candle if I was going to sell this in retail, I might want to price this candle
at $60 per unit and i'm going to sell it wholesale for $30 per unit. Which again is a
50% discount so that does sound like an expensive candle, but keep in mind who your audience is. It's
the most important thing when you're determining what type of candle you're going to make and what
components you're going to use. So understand who your target market is, build your candle around
that. If you're building for a luxury audience or people who care about really high quality products
then $50 or $60 for a candle may not seem like much to them. So, know who your niche is, rule it,
don't try to be everything to everyone. So I hope this video was helpful for you guys. If
you have any additions or helpful tips that you want to share with the rest of our community
for how you determine what your cost of goods sold is, I would love to hear them so please
drop us a comment below. Thank you guys so much for watching. Please feel free to subscribe to
our channel to stay in the know on all the latest makers tips and tricks happy making!