Before we get down to the money, let’s make another assumption for our scenario – this is the “Cost of Ownership” (COOL) cost for the guitar:
Cost of Ownership (COOL) = Cost of Production = Total Cost of Production + Shipping
So, to get an estimate of cost based on our costs I took the total production cost for our budgeted guitar (including shipping, parts, and the cost of packaging) and divided it by the total number of guitars on the market ($6,000 in total) and divided it by $6,000. Then I multiplied the total cost of production by $1,000.
COOL = total cost of guitars at retail = Total Cost of Sales plus shipping
So, for our scenario, we’ll estimate that our first guitar costs about $60, a good chunk of change in our budget for this guitar – just from the shipping alone. In an effort not to over estimate the actual price of guitars we decided that the cost that would be incurred just from the shipping and packaging was $200 (so a total cost of about $350).
So, we’ll round our total cost of ownership (COOL) down to $50 (assuming that the new guitar will be at some point in time, and it would then cost us nothing) and add another 5%.
So, let’s calculate (I’ll also just give you some tips for converting to a gross price and not a cost per unit for the sake of the math):
Cost of Ownership = COOL * Total Cost of Production
So, for our $200 guitar.
Cost of Ownership in New York = Cost of Production + Shipping
So, we’re using $800.
We round that off to $800, which comes to $650 per guitar, which is also the actual gross cost of ownership.
Cost of Ownership
So, for instance, if you can only afford four guitars (or one in the first place, but hey – that’s just my rough estimate), the total cost of ownership (COOL in the example above) for four guitars might be…
$350, or 4.5% of total sales $350, or 6.5% of total sales
So, at $400 a guitar, that’s roughly 4.5% of total sales.
For comparison, our first guitar was a $350 guitar shipped from Canada to the
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