The purchase cost is the total cost associated with buying a product or service, including shipping, customs, and other costs.
The purchase cost is the total expense of buying a product or service. It takes into account the product’s base cost, shipping charges, customs fees, and other expenses linked to the procurement process.
Why purchase cost matters
As a business owner there are many purchases you have to make.
Depending on what you do, you might have to buy raw materials that you can turn into products, buy items to resell, or pay for the internet at your office—these are all costs. You have to understand and calculate the purchase costs for your business. This is important to manage your company well, budget correctly, and ensure that you earn a profit.
Once you know the purchase cost, you can also look at ways to decrease those costs, whether that’s by buying in bulk to reduce prices or to unlock free shipping, changing suppliers, or maybe you even have to charge more for your products and services in order to make a profit.
Some examples
Let’s look at some examples of purchase cost:
Imagine you need to purchase dresses from a supplier to sell in your clothing store. The individual price of a dress might be $50, and you’re looking to buy 10 of them. The base cost of the dresses would be $500, but if you factor in shipping and customs fees at $50, the total purchase cost for the dresses would actually be $550.
The purchase cost—how much you spend acquiring goods and services, directly affects your profitability. Imagine you run a coffee shop and you have a supplier that sells you coffee beans at $20 per bag. If you switch to a supplier who sells bags for $10, then you can pocket or reinvest the money you save.