Cost Auditing

The Hidden Costs in Your BOM: Adhesives, Dyes, Packaging, and Finishing Materials

You create a BOM. You include materials and labor. You think you've captured everything. Then production happens, and you realize you forgot: adhesives, protective coatings, packaging materials, labels, finishing supplies. These "small" items add 15-25% to true cost. This guide teaches you to audit BOMs systematically and catch every hidden cost.

The $2,000 Mistake

Jewelry maker prices bracelets at $35 with $12 BOM cost. Looks profitable. But she forgot: adhesive ($0.15), protective seal ($0.25), jewelry box ($0.80), tissue wrapping ($0.10), thank-you card ($0.05). That's $1.35 per bracelet—12% of her BOM.

On 500 bracelets/year: $1.35 × 500 = $675 in hidden costs she never priced for.

The Five Categories of Hidden Costs

Category	Examples	Typical %
Adhesives & Sealants	Glue, epoxy, waterproof sealant	1-3%
Finishing Materials	Polish, varnish, protective coat	2-5%
Packaging & Presentation	Boxes, tissue, padding, ribbons	3-8%
Labels & Branding	Tags, stickers, thank-you cards	1-3%
Waste Allowance	Breakage, spillage, failed attempts	5-15%
TOTAL HIDDEN		12-34%

A 12-34% miss is massive. If you think your product costs $10 but hidden costs add another $2, you're underpricing by 20%.

The Audit Checklist

Before you finalize a BOM, ask:

Adhesives: Do any components need to be glued, sealed, or bonded?
Finishes: Does the product need polish, varnish, sealant, or protective coating?
Packaging: Box, tissue, padding, card inserts, ribbon?
Branding: Tags, labels, stickers, thank-you notes?
Waste: What % of attempts fail? Account for breakage, spillage, rejects.

Deep Dive: The Six Hidden Costs Destroying Margins

Most makers price based on visible materials only. They forget 6 hidden costs eroding margins to near-zero.

Cost #1: Material Waste (5-15%) - Cutting fabric, pouring resin, trimming leather = scrap. 10-15% of purchased materials never reach final product. Beads cost $12 → true cost $13.80 (with 15% waste).

Cost #2: Consumables - Glue, thread, sandpaper, polishing compound not in final product but essential. Woodworker: $0.50 sandpaper + $0.30 glue per board = $0.80/unit never priced in.

Cost #3: Overhead Allocation - Rent $800, utilities $150, insurance $200/month. 200 items/month = $5.75 overhead per product. Most makers ignore this.

Cost #4: Labor Burden - True cost $25/hr labor is actually $32.50 (add 15% self-employment taxes, 10% unproductive time, 5% benefits). 2-hour product = $65 labor, not $50.

Cost #5: Packaging & Shipping Materials - Mailers $0.50, tissue $0.15, stickers $0.10, thank-you cards $0.25 = $1.00 per order often forgotten.

Cost #6: Platform Fees - Etsy 6.5% + $0.20, Stripe 2.9% + $0.30 = 9.4% of sale. On $35 product = $3.29 in fees. Many makers don't factor this in.

Real Case Study: Marcus Discovered He Was Losing $18 Per Sale

The Problem

Marcus: Wooden cutting boards. "Wood $8, finish $2, sell for $45 = $35 profit." Working 50 hrs/week, $1,200/month take-home. Can't figure out why he's barely surviving despite strong sales.

The Discovery

Full cost audit: Wood $8, waste $1.20, sandpaper/glue $1.50, rent $7.50, utilities $1, labor ($30/hr burdened) $90, packaging $1.50, Etsy fees $3.12 = $113.82 true cost. Selling for $45 = LOSING $68.82/board. More sales = faster bankruptcy.

The Solution

Repriced: True cost ($113.82) × 2.5 markup = $284.55 → $285. Scared customers would balk. Instead: conversion barely changed. Also offered "basic" model at $135 for budget buyers.

The Results

Volume: 80 → 65 boards/month. Profit per board: $171.18. Monthly profit: $11,127 revenue, -$7,400 costs = $3,727 net (vs. -$5,506/month before). Now pays himself $4,800/month. Works 40 hrs/week instead of 50.

Comparison: Three Ways to Account for Hidden Costs

Method 1: Blanket Markup (5-10x Materials) - Simple. Risk: Overprices some, underprices others. No visibility. For hobbyists.

Method 2: Component-Level (Materials + Labor + Overhead) - Accurate per product. Risk: Manual, time-consuming. Best for 5-20 SKUs.

Method 3: Automated BOM ✓ RECOMMENDED - Zero manual calculation, real-time updates, scales to 100+ SKUs. Handles waste, overhead allocation automatically.

Edge Cases

Work from home? Calculate home office overhead: sq ft business ÷ total sq ft × rent. Still $300-500/month.

Custom labor variance? Track 5-10 units, average labor time. Use average for pricing.

Free materials (foraged)? Still has acquisition cost. 2 hours foraging @ $25/hr = $50 to allocate.

Batch producing? Labor efficiency changes. 1 item = 30 min. 20 items = 3 hours (9 min each). Use batch rate.

TrueCraft: Surfacing Hidden Costs Automatically

Automatic Waste Allocation: Set waste % per material (e.g., leather 12%). System calculates true cost with scrap built in.
Overhead Rate Builder: Enter monthly fixed costs. System divides by production volume for per-unit overhead.
Burdened Labor Rates: Set base $25/hr + 1.3× multiplier = $32.50/hr true cost including taxes/downtime.
Per-Channel Fee Calculator: Etsy specific fees auto-deducted. Shows net revenue after all fees.
Profitability Dashboard: "Rose Soap $3.50 profit (29% margin). Lavender $0.80 profit (5% margin). Consider discontinuing or repricing."

Makers using TrueCraft discover $8-15/product in hidden costs. After repricing: 35-50% margins (vs 5-10% before). One maker: "Thought I was making money. TrueCraft showed I was losing $3,200/month. After repricing: $4,500/month profit on same sales."

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