The costs that never reach your buying rate

Add the fare, the loading, the breakage, the wastage, the packing and the free bits before you call anything a buying rate. On a carton of Rs 4,000 those usually add somewhere between three and eight percent, and that gap is exactly the margin most shopkeepers cannot find at month end.

The rate on the bill is not the rate you paid

The supplier writes Rs 4,000 on the bill for a carton. You pay it, you write Rs 4,000 in your record as the buy rate, and you price the goods from that number.

But getting that carton onto your shelf cost more than Rs 4,000. There was the van fare. There was the boy who carried it up. Two pieces were crushed in transit. Three more will be crushed in your own shop before they sell. You gave one to a customer who complained about the last lot.

None of that is on the bill, so none of it is in your rate. And a rate that is wrong at the bottom is wrong everywhere above it: your selling price, your discount, your idea of which items earn.

The fix is not complicated arithmetic. It is doing the arithmetic once, per item, honestly.

Six costs that never reach the bill

Six costs that are never printed on the supplier's bill

• Fare: the van, the rickshaw, the share of a hired trip
• Loading and unloading: the porter at both ends
• Breakage on the road and inside your own shop
• Wastage: spoilage, drying, leaks, what the scoop leaves behind
• Packing: bags, tape, boxes, the labour of splitting a big pack
• The free bits: samples, goodwill pieces, replacements for complaints
• Your own half day at the market, if you fetch the goods yourself

Look at that list and you will recognise every line. What surprises most shopkeepers is not the individual items, it is that nobody ever adds them together.

Two of them deserve a note.

Your own trip. If you go to the market yourself, the fare is obvious but your day is not. Half a day is half a day, whether or not you paid somebody for it. You do not have to price your own time at some invented figure, but do not pretend the trip was free, especially when comparing it to a supplier who delivers.

The free bits. The piece you give to smooth a complaint, the sample you open to show quality, the item you hand a customer to keep his goodwill. These are real costs of selling that item, and they belong in the item's own cost, not in some vague pile called "shop expenses".

Work it out once, for one item

Take a single item you buy often. Not the whole shop, one item. Then write down what a full carton truly cost by the time it was sitting on your shelf ready to sell.

Say a carton of 96 pieces bills at Rs 4,000

Bill rate per piece, the number most shops useRs 41.67

Share of the van fare for this cartonRs 180

Loading at the market and unloading at the shopRs 60

Pieces crushed on the road and in the shop4 pieces

Piece given free to settle a complaint1 piece

What the carton really costRs 4,240

Pieces that will actually be sold91

Real cost per piece, against Rs 41.67 on the billRs 46.59

Say a carton of ninety-six pieces bills at Rs 4,000, which is Rs 41.67 a piece. Add Rs 180 of shared van fare, Rs 60 for loading, four pieces lost between the market and the sale, and one given away. Now the carton cost Rs 4,240 and only ninety-one pieces will ever be sold. The real cost is Rs 46.59 a piece.

Rs 41.67 against Rs 46.59. That is nearly five rupees a piece, on an item you thought you knew.

If you were selling at Rs 48 and thinking you earned Rs 6.33, you were earning Rs 1.41. Sell that item on a discount, or throw in a free piece, and you were losing money while feeling generous. That is the whole reason working out your shop's real profit so often produces a number smaller than expected.

The costs that only appear over a week

Breakage and wastage are the two everybody underestimates, because they never happen in one visible moment. They happen in ones and twos, on ordinary days, and each one is too small to write down.

So measure them for a short stretch instead of guessing. Pick one item, keep a slip beside it, and mark every piece that breaks, spoils, leaks, expires or gets given away for a fortnight. Do not change any habit while you count, or you will measure your best behaviour instead of your normal one.

Two weeks of marks tells you more about that item than a year of impressions. Some items will show almost nothing. One or two will show a number that makes you change either the supplier, the packing, or where the item sits in the shop.

Weight is its own quiet cost. Things bought by weight and sold by weight lose a little to drying, to the scoop, to what sticks to the sack. If you sell loose rice, oil, sugar or fresh goods, weigh what you actually sold out of one full bag, and compare it with what you bought. The difference is a real cost of that item and it is invisible in every other way.

Which items deserve this arithmetic

You are not going to do this for four hundred items, and you should not try. The list that matters is short.

Do it for the items you sell the most of, because a small error on a big volume is a big error. Do it for anything bulky or heavy, because transport and loading land hardest there. Do it for anything fragile, anything that spoils, and anything you buy from far away.

Do it also for the item you are proudest of, the one you believe carries the shop. That belief is worth testing, and it is often the item with the most breakage or the most free pieces handed out, because it is the one you push hardest.

Everything else can wait. Ten items done honestly will change more of your pricing than a hundred done roughly.

Keep the working somewhere you can find it again, even if it is the back page of a notebook: the item, the pack size, what you added, and the date. When the rate moves, you update one line instead of starting over, and you can see whether the extra costs on that item are growing.

What to do once you know

Knowing the real cost only helps if it changes a decision. Three usually change.

Your price. Price from the real cost, not the bill. Sometimes that means raising a rate by a rupee or two, which customers rarely notice on a single item, and it is the difference between working for a margin and working for nothing. If you keep two prices for one item, run both from the real cost the way two rates for one item sets out.

Your buying. Once transport and breakage are in the number, the cheapest supplier is sometimes not the cheapest. A rate two rupees lower that comes with a longer trip, more handling and more damage can easily land higher.

Try it on paper before you switch. Say one supplier bills a carton at Rs 4,000 and delivers to your door, and another bills Rs 3,880 but you must fetch it. Add Rs 180 of fare and Rs 60 of loading to the second and it lands at Rs 4,120, so the cheaper bill is Rs 120 more expensive per carton. On twenty cartons a month that is Rs 2,400 walking quietly out of the shop, and it never appears anywhere as a loss because both bills looked fine when you paid them. This is also what settles arguments about quantity, because the fare per piece drops when the load is bigger, which is half of the case in bulk or little and often.

Your discounts. Most shops give discounts against the bill rate, which means the last one or two rupees of a discount often come out of nothing at all. Knowing the real floor tells you exactly where the yes has to become a no.

Keep the real rate in the record, not in your head

Doing this once and forgetting it is the usual outcome. It works for a month, then a rate changes, and the number in your head is out of date.

Keep the buy rate on the item itself, in your record, and update it when it moves. In Wasoolo each product carries its own buy rate, so when you look at what an item earns, you are looking at the rate you actually recorded rather than remembering a supplier's bill from months ago.

Write the landed rate there, not the bill rate. The field does not care where your number came from; you can add the fare and the wastage yourself and put the honest figure in. Then the profit view shows what the shop is really making on each item, and the number stops flattering you.

The expense side does the rest. Fares, loading and repairs recorded as expenses stop being invisible, and at the end of the month you can see how much of your margin the road took, which is the one cost every shopkeeper pays daily and almost none of them measure.

Common questions

My supplier delivers free, so I have no transport cost. Is any of this relevant to me?

Free delivery is rarely free, it is inside the rate, and that is fine as long as you compare properly. Your other costs still apply: breakage, wastage, packing and free pieces. And when a cheaper supplier appears who does not deliver, this arithmetic is what tells you whether he is genuinely cheaper.

How do I put a value on my own time when I go to the market myself?

Do not invent an hourly figure. Ask a simpler question: if you had stayed at the shop, would you have sold more or paid somebody less? If the shop closes or runs short-handed while you are away, that is a real cost and belongs in the comparison. If the shop runs fine without you for those hours, the trip mostly costs you the fare.

Breakage is one or two pieces. Is it really worth counting?

One piece in ninety-six is about one percent, and on many items your whole margin is a few percent. Count it for a fortnight on your biggest items and you will know instead of guessing. On some items the number is nothing; on one or two it will be the reason that item never seemed to earn.

Should I raise my prices as soon as I work this out?

Not everywhere at once. Start with the items where the real cost showed the biggest surprise, and move those by a rupee or two. Watch what customers actually notice, which is usually far less than you fear on items they do not buy every day. Where a raise is impossible, change the buying or the packing instead.

What about the cost of giving credit? Is that part of an item's cost too?

Keep it separate. Credit is a cost of the customer, not of the item, and mixing them makes both numbers useless. Work out an item's real landed cost first, then decide who gets that item on credit and at what limit. Never add anything to a customer's balance for taking time to pay.

My rates change every few weeks. Do I have to redo this every time?

No. The extra costs stay fairly steady as a share, so once you know that a certain item lands about seven percent above its bill rate, you can apply that to the new rate and check the real arithmetic again only when something changes: a new supplier, a different pack size, or a longer trip.