Export Assist - Pricing

There are many different methods of determining your export pricing. Whatever approach you use, it is important to determine all components which make up the final cost of your goods and who is responsible to pay them. Such costs may include:

Export Customs Clearance
Packing
Freight
Insurance
Import Duties

The list could go on and on, however an understanding of Incoterms, will help to assess who will ultimately be responsible for all these costs and how they are incorporated into your cost structure. It is important to realise that these costs may vary from country to country and customer to customer.

Cost Plus Pricing
One of the most common methods of calculating export pricing is the Cost Plus Approach. This approach takes the appropriate component of your domestic price and includes any export related costs that will be incurred, depending on the agreed Incoterms.

While relatively straight forward, this approach does not consider the ultimate selling price in the export market, and how your product will be priced against competitive products. As a result, some products may not be successful in the export market as their price structure is not competitive.

Top Down Pricing
Top Down pricing turns the Cost Plus approach on its head by looking at the pricing of competitive products in the export market. By starting at looking at retail pricing, removing distributor and importer margins, duties, freight, insurance etc etc, you can determine desired price points across different Incoterms.

The Top Down approach will allow you to determine the margin levels which can be obtained in different markets. While some markets may require reduced margins to be competitive, other markets may present opportunities for higher margins. Using this approach in conjunction with your importer or distributor will enable you to set the pricing at a level in which you believe your product will have the most success.

Differential or Marginal Pricing
Differential or Marginal pricing is an approach commonly used for export. By looking at the fixed and variable costs in a business, you will ultimately determine your domestic pricing. However by factoring an allowance for increased export sales, the fixed costs are effectively reduced on a per unit basis. Consider the following example:

DOMESTIC – 100,000 units sold per year
Fixed Costs: $200,000 per year
Variable Costs: $5 per unit
Total Costs: $700,000
Total Cost per unit: $7 per unit

DOMESTIC + EXPORT – 150,000 units sold per year
Fixed Costs: $200,000 per year
Variable Costs: $5 per unit
Total Costs: $950,000
Total Cost per unit: $6.33

By allowing for increased production to cater for an export market, your total costs per unit are reduced, allowing you to potentially sell in an export market at a lower price level with the same level of profit.

Export Assist has developed a number of templates to help develop a pricing structure for export. For futher information, please contact us.

The information provided is to be used as a guide only, and without warranty of any kind. We recommend that you contact Export Assist ™
to discuss your individual situation.