Cost and profit calculation method of furniture industry

 

Is the furniture industry highly profitable? How much profit can a solid wood furniture business generate? In this article, I’ll walk you through the cost and profit calculation methods in the industry. I hope this helps you better understand how to choose furniture and what the actual costs are, so that when you buy furniture, you can make an informed decision.

 

 

When solid wood furniture leaves the factory, the factory adds 28% in indirect costs—such as water and electricity (2%), rent (10%), machine depreciation, and other consumables (3%)—on top of direct production costs, which include materials, labor, and workshop manufacturing expenses. Additionally, there's 10% for management salaries, hospitality, and travel, plus 3% in taxes and fees. Finally, the factory adds a 12% profit margin.

 

For example, if the direct production cost of a solid wood bed is 3,200 yuan, the ex-factory price would be approximately 5,333 yuan (calculated as 3,200 divided by (1 - 0.28 - 0.12)). This doesn’t include shipping or packaging costs. It’s a standard estimate. Factories that operate efficiently may reduce overhead slightly, but even then, the reduction is usually around 5%. This is the factory price.

 

The cost of packaging, reinforcement, and transportation also plays a role. Let’s say the factory is located in Shanghai or its suburbs. The outer frame reinforcement and labor might cost around 120 yuan. Shipping from the surrounding areas of Shanghai to the city distribution center could be another 120 yuan, while delivery from the distribution center to your home and installation of a single product might cost about 100 yuan—more for larger items like wardrobes, around 200 yuan. So, the total transportation cost ranges between 380 to 480 yuan.

 

If the manufacturer offers after-sales service, such as repairs for minor issues caused by humidity or temperature changes, these will add to the cost. On average, after-sales support for a single product might cost around 30 yuan.

 

So, if the bed is delivered directly from the factory to your home, the total cost should be around 5,743 to 5,843 yuan (5,333 + 380–480 + 30). However, many furniture items are sold through retail stores like Red Star, Jisheng, or Yuexing. In such cases, the cost increases further. Here’s how it breaks down:

 

Typically, after leaving the factory, furniture goes through a dealer. A typical store requires 20% of the sales cost, covering rent and operational expenses. The dealer must ensure at least a 20% profit, meaning the total cost for the sales link is around 40%. As a result, the price of the bed becomes 8,888 yuan (5,333 / (1 - 0.4) = 8,888), not including transportation and packaging. Adding the previously calculated costs (380–480 for transport and installation, plus 30 for after-sales), the final price comes to around 9,298 to 9,398 yuan.

 

This is a full breakdown of the furniture industry’s cost structure. When you see solid wood furniture in a physical store, you don’t need to be confused by the discounts. Just apply the formula I’ve provided and calculate the real cost behind the price. Now you have a clearer understanding of what you’re paying for when buying solid wood furniture.

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