Know Your Costs: Practical Costing and Pricing for Small Business

Many small businesses are busy every day and still close within a year. The owner works hard, customers keep coming, and yet there is never enough money for a full restock. Kenya’s national survey of small businesses in 2016 found that almost half of the businesses that closed did so in their first year, and that a shortage of money to run the business was the most common reason. Owners say “business was slow” or “I ran out of capital”. Behind those words there is usually a costing problem that could have been fixed.

This practical course shows you how to fix it. You will learn to answer three questions about your own business: What does one unit cost? How many must I sell each month to cover my costs? Am I paying myself, and is my capital growing or shrinking?

You will follow the members of a fictional savings club, each with a different business: a maheu maker, a baker, a décor and events hire business, a curtain maker, a broiler chicken farmer, a phone stall and a vegetable vendor. Each makes a common mistake, owns it and fixes it, so you can learn from their figures before you risk your own.

What you will learn

• Work out what one product really costs, from what you buy to what one unit uses
• Find the fixed and hidden costs your price must carry, including your own pay
• Keep business money and household money apart, and stop drawings from eating your capital
• Count your time and your equipment as costs, so each sale pays for its share
• Tell markup from margin and set a price using your costs, your competitors and your customers
• Cut the cost of spoilage and stock losses, and sell on credit without losing cash
• Work out what each sale leaves behind, your break-even point, your margin of safety and the sales you need for a target profit
• Cost a job, an event, a batch or a farming cycle, and write a quote that covers every cost

Your toolkit

Every worked example is a small spreadsheet you can copy into Excel, with the formulas listed so you can type them in and check your answer. Each module ends with a toolkit: a product cost card, an owner’s pay and equipment cost sheet, a pricing sheet, a break-even calculator and a job quote builder, each with a fully worked example and blank grids for your own figures. The last lesson brings every formula together in one course reference.

Who it is for

Owners of small businesses and those about to start one: traders, makers, people who work to order, farmers and service businesses, and those who advise or lend to them. No accounting knowledge is needed; basic arithmetic and Excel or a similar spreadsheet are enough.

How the course works

Five modules, each with four lessons and a short scenario quiz. You need 70% on each quiz to complete the course and earn your certificate. Lessons use plain words, with the professional term in brackets the first time it appears. Every person, business and figure in the case is fictional and illustrative, not a benchmark; prices, taxes and charges differ by country and change, so always use your own figures. The course does not prepare you for any certification exam.

This course teaches standard costing and pricing methods in its own words. Figures from published surveys are dated and attributed where they appear. The course is not endorsed by, or affiliated with, any organisation named in it.

This course teaches costing; it does not promise that any business will succeed or earn a particular income. Results depend on your market, your prices and your decisions.