Two days ago, we covered the cost of materials.

Yesterday, we discussed the cost of labor.

Today, let’s cover overhead expenses.

This is the last piece of the puzzle needed to calculate the “break-even” cost for my SnugasaBugBaby Product Line.

materials + labor + overhead = “break-even” cost

Because my sewing station is set up in our guest bedroom, my overhead costs are really very low. (It isn’t like I have to pay studio fees or anything). I haven’t had to get a whole lot of new equipment for SnugasaBugBaby either. My sewing machine was a birthday present last year, and my serger a Christmas present a few years before that. I have invested in new scissors, a rotary cutter, a cutting mat, new sharp pins, a nice iron, and probably a few other things I am not thinking about right now. Each of these products, as well as the needles on my machine, will need to be replaced as they become dull. Each and every thing I sew takes just a little bit of toll on my tools.

You may remember my mentioning a few days ago that I do not include the cost of thread, tear-away stabilizer, buttonhole cording, or the small pieces of velcro in my materials costs. The cost of these items are difficult to calculate and is usually rather diminuative. Still, these small costs add up. I have decided to include them in my overhead cost.

Nothing I read or heard gave any sort of formula for calculating overhead. They just say, “make sure you include overhead.” So I came up with my own formula. The wear-and-tear on my stuff is pretty directly related to the amount of time I spend using them. Likewise, the longer I sit at my machine sewing, the more thread I use. Therefore, I have decided to calculate my overhead cost as 10% of the cost of labor. Since the labor cost for a playmat purse is $30, I charge $3 to cover the cost of thread, stabilizer, buttonhole cording, as well as wear and tear on my equipment. Since it takes me a lot longer to make a diaper bag (11.5 hours), it follows that I use my scissors, rotary blade, pins, needles, etc. more. I also use a lot more thread. (Just about a whole spool actually… still, I stick with the formula). Since the labor cost to make a diaper bag is $138, I charge $13.80 to cover these costs.

I consider my overhead to be a bit like calculating mileage. When you request mileage reimbursement for any business done on the road, the amount does not just cover gas…it also compensates you for wear and tear on your vehicle and contributes to the cost of any services (like an oil change) that might become necessary as a result of your travel. I think that my 10% overhead cost margin is just enough to cover the “gas” (thread, etc.) and also make up for wear and tear (replacement costs of scissors, blades, mats, pines, needles, etc.). Hopefully, this amount will slowly add up to cover any service I may need to have done on my machines as well.

So there you have it….all the components to calculating my “break-even” cost.

And here are crunched numbers for each of the products in my opening line:

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Surprised? I was. Tomorrow let’s talk about profit.

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Follow the Whole Pricing Process:

General Pricing Formula

Calculating Break-Even Cost: Materials

Calculating Break-Even Cost: Labor

Calculating Break-Even Cost: Overhead (You Are Here)

Adding a Profit Margin

Adding Retail Mark-Up ?

Adding in Fees: Establishing the Final Price

Related posts:

1. How I Calculate My “Break-Even” Cost, Part II: Cost of Labor
2. How I Calculate My “Break-Even” Cost, Part I: Materials
3. Welcome to the Nursery, Part III: Josiah’s Custom Baby Blanket
4. About Prices
5. Welcome to the Nursery, Part I