Costing Exercise Completed

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Over the last week I have been busy with a costing exercise for a screen printer to see if having the punch bags printed locally was financially viable or not. I had been quoted on our current job by a member of our neighborhood community and was a little stunned at his prices and told him he was expensive.

I gave him a task of finding a new supplier for his raw materials or negotiating a new price with his current supplier. He did not fair very well and last Friday we had to go and visit his supplier as a team. This worked out rather well as his raw material price was reduced by 25% and if nothing comes out of this deal he has at least a better price now. Personally I still think he is getting screwed over even at the new price, butt that is his problem to negotiate further.

In any business you have to fight for the best price because this is what ultimately drives your profit margins as the buying is where the profit is made and not the selling. This is rather important if you are in a competitive market place as otherwise everyone in your industry is at a similar price.

The profit margins the screen printer was working on was not too terrible and inflated which I thought might be the case. We managed to drop the price down by another 30% and even at the new price it was way out of the target price required.

Sometimes you just have to walk away when the figures do not work and we needed to literally be half the price of where we finally ended up. Whoever is importing the raw materials and the agents selling these materials on are definitely the ones who are making the decent profits leaving the actual screen printers with raw materials that have been marked up between 200-300%. This is often the case and why if you can you import your own raw materials directly and remove the middle man.

When I was dealing with cell/mobile phones many years ago on average one phone passed through 10 sets of hands before you received it. This is 10 lots of mark ups each making profit and one reason phones are so expensive. A cell phone actually costs very little if you exclude the research and development costs and is nowhere near the value you finally pay and can divide that price by around 20 so 5% of the final sales price would be the initial cost from supplier. Scary when you place that into context of how many phones have been sold over the years. There are ways around this, but you need very deep pockets to remove those 10 middle men and again it would be very profitable.

The punch bags was a worthwhile exercise because we now know where we stand and what needs to happen moving forward and branding the bags needs to happen at the factory and not locally in South Africa. More knowledge learned about another industry is always good to have because you just never know when you may need this on another product.

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