How to Write a Business Plan

104 | HOW TO WRITE A BUSINESS PLAN

One way to derive your average cost
of sales is to estimate your annual sales
revenue for each product or service. Then
calculate each product’s annual cost of
sales. Finally, add up the numbers to get an
annual average.

More Detailed Method to

Determine Average Cost of Sales

Another way to calculate your average cost

of sales is to make a separate monthly sales

revenue and cost of sales forecast for each

of your major product or service lines. If you

complete a separate monthly forecast for

each of your product or service lines, you

will have a very detailed forecast. However,

many people balk at this level of detail in

forecasting and wish to proceed with the

less-detailed method demonstrated in this

section. Either way is acceptable.

CAUTiON
Whether you make one annual cost of
sales forecast or a number of detailed forecasts,
don’t forget about the inevitable percentage
of merchandise you will have to move at
marked-down prices. Whether you’re in the
book business, bake cookies, or are a child

psychologist, chances are you will commonly

sell some of your product or services for less

than standard prices. This may be because you

need to move out last year’s styles or because

you need to sell broken cookies or because

you provide counseling cheaper to low-income

groups.

exAmple:

Antoinette Gorzak plans to sell dresses

for an average price of $250, and her

research shows they will cost $125 each.

Her cost of each sale for dresses before

she allows for labor and other overhead

will be 50% of the selling price. If she

plans to give her customers anything

with the purchase, say a specially

printed shopping bag and an imprinted

dress box, she should include the cost

of these items as part of her cost of

sales. Maybe this will make her cost of

each sale 51% or 52% instead of 50%.

Since Antoinette sells accessories in

addition to dresses she needs to allow

for different gross profit margins for the

additional merchandise.

A cost-of-sales averaging chart for

Antoinette’s Dress Shop might look

like this: