Set up Default Variable Cost Parameters and Target Margin
In Account Settings > Financial you can set up both a ‘Default Target Margin’ and ‘Default Variable Costs’. These are account level defaults and will take affect unless they are overriden for a particular website or product.
Default Target Margin
The ‘target margin’ is the percentage gross margin you expect to make generally when selling your products. The main function of this number is to power the calculation for ‘target price’ that the system does for each product. You can override the default ‘target margin’ for websites or individual products.
Default Variable Costs
Again, these are account level defaults and can be overriden for each product, so enter your most common costs here and later tweak for products that don’t obey this cost structure.
The variable cost matrix allows you to enter costs for a variety of different factors that might go towards variable cost:
Production costs
Incoming freight costs
Incoming admin costs
Duty
Advertising
Sales commissions
Payment processing
Pick and pack
Packaging
Delivery loss
Of course, you don’t have to factor in all (or any) of these costs as variable costs. Some businesses might prefer to count some of these as overheads rather than variable costs. Only enter amounts for variable cost metrics that make sense for your business and that you want to factor into unit margin calculations. For example if you sell fluffy toys then perhaps delivery loss is a pretty rare occurrence, and you can just chalk this up to an overhead of doing business. Alternatively, if you sell glassware you might quite regularly have breakages during transit and so wish to record the cost of this in "Delivery loss". It may be that cheaper products require increased prices to cover the costs of the delivery losses on those items for it to be worthwhile selling them at all.
For each type of variable cost, you can enter the cost basis in any of four ways:
Per unit
The amount entered will be summed for each unit. (e.g. if you enter a per unit cost of 10p, 5 units would mean a cost of 50p).
Production costs, pick and pack or advertising.
Per Kg
An amount per Kg of shipping weight (e.g. if you enter 10p and a product weighs 2Kg, a total of 20p would counted for that cost). Note that if you have 'volumetric weight' activated on your account, this will be used.
Incoming freight costs, packaging or delivery loss.
Percentage of purchase price
e.g. if you enter 10% and the product costs £5 to purchase, 50p would be summed. Note that the system always uses percentage of purchase price in your base currency. To understand which currency you are purchasing an item in, the system will look at the currency of your selected ‘preferred supplier’ for each item.
Duty or incoming admin costs.
Percentage of sell price
e.g if you enter 10% and the sell price is £10, £1 would be summed.
Commissions or payment processing.
Note that you are not limited to a single calculation type for each cost metric. For example, let’s say you pay 20p + 2% for credit card processing and you want to capture this as a variable cost. Your average order has ten lines, so you can ascribe 2p per unit to payment processing. You can enter both 2p ‘per unit’ AND 2% percentage of sell price’ as costs for payment processing.
Last updated