How to Calculate Product Costing. From Materials to Your Warehouse.

Product costing is working out what one unit of a product costs to make and deliver. To calculate it, add the cost of materials (including wastage), labour, factory overheads and profit to get the factory price, then add freight, insurance, duties and handling to get the landed cost. Compare the landed cost with your selling price to check the margin.

The method is the same for a T-shirt, a pair of shoes or a kitchen product; only the weight of each cost changes. Small gaps are repeated across every unit you order, so a product can miss its margin without anyone noticing.

Think of landed cost as the true price of one unit sitting on your warehouse shelf. Import duty is usually a percentage of the customs value of the goods, and the rate depends on the product and the country. Check it with your customs broker for each product type.

Margin is profit as a share of the selling price. Markup is profit as a share of the cost.

For the same product and price, the markup is always a bigger percentage than the margin. If finance plans in margin but product prices with markup, the season looks profitable on paper and misses its target. Agree one and label it on every costing sheet.

Apparel. Fabric is often the largest cost, so fabric consumption and wastage matter most. Colourways and sizes can change consumption.

Footwear. Many components per pair, plus tooling such as moulds and lasts, which must be spread over the expected volume.

Beauty and personal care. Formula ingredients, primary packaging, filling, testing and regulatory work all add cost.

Consumer goods and manufacturing. Parts, tooling, assembly and packaging, with engineering changes that can move the cost late.

“The cost changed after we signed off.”

The product changed after the quote and the cost did not, so the sheet described an older version.

Re-cost every time the BOM changes.

“Where did the extra cost come from?”

Thread, labels, inserts and cartons were missing from the sheet.

List every small item, however cheap.

“We ordered more material than we costed.”

Material was costed as if nothing is lost in cutting or production.

Add a wastage allowance to every material line.

“The price went up when we cut the order.”

The price was quoted for one quantity and used for a much smaller order.

Note the quantity on every quote.

“The cheap supplier wasn't cheap.”

A low factory price hid high freight or duty.

Compare every supplier on landed cost.

“The margin looked fine in the meeting.”

Prices were set with markup and checked against margin.

Use one measure everywhere.

Imagine Ravi, a product manager at a kitchenware brand, costing a new non-stick pan. For example:

Spreadsheets work while the range is small. As it grows, the BOM changes in one place, the quote arrives in another, and the purchase order is typed by hand from a third. A PLM (product lifecycle management) system keeps materials, quotes and approvals on one product record. New to PLM? Read what PLM is.

Polluxa PLM is product lifecycle management software for fashion, footwear, beauty, consumer goods and manufacturing brands. It keeps the data your costs depend on in one shared record for each product.

See how the pieces fit in our PLM software for consumer brands.

When you want to cost one of your own products in one place, book a demo.

Product cost is the total of materials (with wastage), labour, processes, packaging, overheads and factory profit. Add freight, insurance, duties and handling to get the landed cost, which is the full cost of one unit in your warehouse.

FOB is the price the supplier charges to make the product and load it for shipping. Landed cost adds freight, insurance, duties and local handling, so it shows the full cost of getting the product to you.

Start from the planned selling price and multiply it by one minus your target margin. The result is the most the product can cost if you want to make that margin.

Either can work, but use one consistently and label it. Many retail and consumer brands plan in margin, because it shows profit as a share of sales.

Whenever the product, supplier, order quantity, exchange rate or shipping method changes. At minimum, confirm the cost before you send each purchase order.