Why your “profitable” product might be losing money
The QuickCosting Team
Ask most small manufacturers what a product costs, and they'll tell you the price of materials plus a bit of labour. That number feels right. It's also usually wrong and the gap is where margins quietly disappear.
The cost you can see vs. the cost you can't
Direct costs raw materials, the hourly labour to make the thing are easy to count. But every unit you make also absorbs a slice of the costs that keep the lights on: rent, equipment, packaging design, the time you spend on admin instead of making product.
When those overhead costs aren't allocated back onto each product, a unit can look healthy on paper while losing money in reality.
If two products share a factory but only one carries its real share of the rent, the other one is being subsidised and you can't see it until you do the math.
A quick example
- Materials + labour: $6.00 per unit
- Your price: $9.00 looks like a 33% margin
- Allocated overhead:
True cost: $9.50. You're losing $0.50 on every single unit you sell and the more you sell, the more you lose.
What to do about it
Build your cost sheet so overhead is allocated, not ignored. Then pressure-test your prices against the real number, not the comfortable one. That's the whole reason we built QuickCosting: so the hidden cost stops being hidden.