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 for Marketing and Sales.
Keep reading 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 latter is the cost of sale plus the profit that will be obtained by selling your product or service.
While the cost of sales refers to the expense that the company makes to produce (in totality) the products it sells or services provided in a certain period of time.
How does cost of sales change for 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 offered by each one 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 your cost of sales is very simple.
While the process in a manufacturing or industrial company is longer because your product or service is produced there, 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:
Trading company cost of goods sold = beginning inventory of merchandise + cost of purchases – ending inventory of merchandise.
The cost of sales of an industrial company = beginning inventory of finished goods + manufacturing cost of finished goods in a period – ending inventory of finished goods.
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 of the previous point.
The cost of sales in a product includes:
- the cost of any raw materials we have used to manufacture or produce such product;
- the cost of storing the products;
- direct and indirect labor costs;
- paperwork expenses (in the case of imported materials);
- product depreciation;
- product transportation costs;
- 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 (rent, salaries, stationery, etc.).
Despite the fact that it seems that fewer aspects influence the cost of sales of a service, there are companies whose services are very complex, so they must be evaluated more thoroughly.
The calculation of the cost of sales provides a global and necessary vision to set the sale price according to the expense incurred.
However, you must 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 reduce your cost of sales and increase your sales force.
As explained in the article, each product or service that we sell will have a specific cost, which will vary depending on the raw material needed, the personnel involved in its production or provision of the service, the distribution channel used, etc.
Did you like the article and want to continue learning? So, don’t hesitate to read our blog on Marketing and Sales, it will be very useful for you!