Costing & pricing

2 years ago

You will be aware from running your business in your domestic market that there is a difference between costing and pricing. It is only rarely that businesses can add up all the costs, then add a margin, and call that the price. Normally the two processes are independent: costing is indeed the sum of all the individual costs but pricing is a function of the marketplace and depends on how much customers think they will benefit and thus on how much they are willing to pay.

The 4 Ps: product, price, promotion, place.

If you have ever studied marketing (in English) you will be familiar with the 4 Ps: product, price, promotion, place. That should confirm for you that price is a function of the marketplace. Of course, the price has to be higher than the cost. If you set the price too low you will achieve lots of sales — but fail to make a sufficient profit or, worse, make a loss and destroy your business. If you set the price too high, you will fail to make sufficient sales to pay back your initial investment. Pricing policy is clearly a major strategic decision. And once you’ve set the price and won the orders you then have the thorny question of how you’re going to get paid. If you think getting paid in your domestic market is hard work, wait until you try to get foreign customers to pay.