Determining a good price
When determining a price for your product, you have to take into account more than the costs of production, storage, distribution and delivery; the quality of your product and its position in the export market (high or low?) matter as well. The price you charge must be in line with the market level.
Why calculate the price?
The export price is a crucial part of the negotiations with your buyer. But before you agree upon a price, you must be aware of the costs you have and take into account the prices on the export market. This enables you to offer your customers a price that covers your costs and ensures a profit without becoming so expensive no-one will want to buy it.
How do you calculate the price?
To calculate a price, you take into account the product’s production price and the export costs. There are direct and indirect costs. Direct costs are costs made to produce the product, such as raw materials, production costs, devaluation of machinery, transport costs, and insurance. Indirect costs include company management costs like advertising budget, travel costs, and staff salaries. A complete price calculation for your export product includes all these costs.
An example: handbags for Australia
Let us say you want to export 500 handbags to Australia. For how much will you sell these bags? Perhaps you think €50 is a fair and competitive price, but is it realistic?
You will have to factor all the costs:
- direct costs, for production, fabric, transport etc. All in all, these costs will run to €13,000. That means €26 per handbag.
- indirect costs, for the rent on your business premises and storage space, water and energy, telephone and insurance costs, etc. It is easy to forget about these costs or underestimate them, but by doing so you risk making a loss instead of a profit. They can easily run to an amount of €20 or more per handbag.
So: €26 plus €20 means you have a minimum sales price of €46. But you also want to make a profit; how much is up to you. For this example, let us say your profit is €24 per handbag. This brings the sales price to a total of €70.