Direct cost of sales in E-service

[nychole]

Our group now encouters a intractable problem when making a biz plan. The problem exists in "Direct Cost of sales", we're engaged in the business field of offering web service to banks, that saying we'll buy relative equipments for banks and construct the platform for them, and then charge the installation, maintance,debug and upgration fees. However, we've no idea what is the Direct Cost of sales in our project.Due to the characteristic of service industry, it's not easy to identify the explicit cost. SO could anyone give us a guide to figure it out? Thanks so much!!

[nychole]

come on guys! we're in urgent help of figuring out this prob. thanx so much!

[Joyous]

Hi Nychole

Your direct cost of sales is basically the cost of acquiring or creating the product that you are selling. For the retail and manufacturing industries it’s straightforward as it’s usually stock i.e. the cost of buying or making the product to be sold.

For the service industry it’s not so cut and dried. If, as you say, you’re buying equipment for banks an installing it then you should certainly include the purchased equipment in the cost of sales. As a rule of thumb only include costs that arise as a direct result of the sale, e.g. if you have to pull in a freelancer specifically for the project then include his costs.

Anything that you would have to pay out whether or not you make a sale should not be included as a direct cost of sales. So for example any staff that you have are presumably paid an annual salary whether or not a sale is made. Such costs are not direct costs of sales.

Hope this helps.

Regards

Joy

[nychole]

Thanx