Gross Margin Price cost of goods sold = gross margin



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Cost Assumptions for Product company




Gross Margin

Price - cost of goods sold = gross margin








Description

Amount

Level of confidence + Explanation

Plan to validate assumptions

Price of good sold to customer

Baseball Hat

$20

High level of confidence because I have seen many hats be sold for this amount. This seems like what the standard price for a hat is, at least in the US

Go online and look at 5 different baseball hat retailers to confirm that my $20/hat assumption is correct



Costs of good sold

Materials (cloth, fabric, etc.)

$4

Low level of confidence because I actually have no idea how much the cost of the fabric and materials are

Find a company that produces hats and understand what their material costs are
Call some material suppliers and ask them for a quote on material for a hat

Labor to actually produce the hat

$10

Medium level of confidence because I am guessing that it takes about one hour to manufacture one hat, and I am planning on paying about $10 per hour

Ask the hat company about what they pay their workers and how long it takes

Total costs of goods sold




$14







Gross Margin




$6









Break-even analysis


List the three most expensive recurring/fixed costs you might incur.





Description

Amount per month

Level of confidence + Explanation

Plan to validate assumptions

Recurring/Fixed Cost 1

Rent for facility to produce hats

$1500

Low level of confidence because I don’t know much about warehouse space locally and how much it costs. I also don’t know how much space I need.

Do research about the square-footage needed for a hat company.
Ask real-estate brokers about industrial real estate rental prices in the area

Recurring/Fixed Cost 2

Renting a hat-making machine

$300

Low level of confidence because I don’t know what the going rate is for these hat-making machines are.

Call existing hat companies and see how much it costs to rent a hat machine.

Recurring/Fixed Cost 3

Marketing and office manager

$1500

Medium level of confidence because this equates to about 30 hours per week for someone getting paid $10 per hour

I might talk to potential people I want to hire and ask them if they’d be willing to work for 30 hours a week for $10 per hour

Total fixed operating expenses per month




$3,300









Gross Margin

$6




Total fixed operating expenses per month

$3,300




Number of units to break-even per month

550 units

$3,300 / $6 = 550 units

Sales per month to break-even

$11,000

550 units * $20 per hat = $11,000



Sales Growth Forecasting


  • How soon can you start selling the product?

  • How many will you sell in your first month?

  • How will your sales grow on a month-by-month basis?

  • How long will it take for you to be able to pay yourself?


Enter the number of units below your project to sell each month….


Month 1

Month 2

Month 3

Month 4

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Month 6

Month 7

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Month 10

Month 11

Month 12

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