Export Pricing

Options for Calculating Cost
Sample Costing Worksheet to a Buyer
Important Notes and Considerations
Sample Cost-Plus Calculation for the End User

• Make the buyer's decision process as easy as possible by preparing your export price list CIF in the currency of the country and port of product destination.
• Understand the way business is done in the export market and conduct your business similarly offering the same value proposal as local suppliers.  Payment terms, delivery and after-sale servicing are important considerations.
• Include a proviso in your price list - "Prices subject to change".
• Consider currency fluctuations when preparing the price list.
• Do not include "suggested retail prices" on your wholesale price list unless requested as this is not well received, especially in North America.
• When preparing an export price list, in many cases, the following costs may apply.  These costs should be added to each item in your product line to be exported:
  • Fixed costs;
  • Shipping ex factory to port of departure;
  • Air or sea freight and insurance;
  • Import duty and taxes;
  • Customs clearance/broker fee;
  • Ground transportation from port of entry to warehouse or customer, as appropriate;
  • Warehousing fees, if applicable;
  • Agent's commission or importer's mark-up, as appropriate;
  • Break-bulk fees, if third party warehouse applies;
  • Packaging and labelling to local standards;
  • Product certification, if required;
  • Product liability insurance;
  • Advertising costs;
  • Promotional costs.
• Remember that the retailer adds a mark-up on your product as well.  While this does not affect the preparation of your wholesale price list, it is critical to understand what the retail price of your product would be to the end user.  It is also important to understand how your prices stack up against your competitors' and make a determination whether the export market can bear your price.

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Options for Calculating Cost

1. Cost-plus method.  In the cost-plus method calculation the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges and profit.  The net effect of this pricing approach may be that the export price escalates into an uncompetitive range.
2. Marginal cost pricing.  This method considers the direct, out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss.  This would include any product modifications plus economy of scale savings as the incremental cost of producing additional products for export should be lower than the earlier average production costs for the domestic market.
3. Buyer based.  Perceived value.  More psychological than based on economics.
4. Competition based.  Benchmarked to competitors or market average.
5. Price adjustment strategies.  Discount pricing and allowances, rebates;  discriminatory pricing;  promotional pricing (loss leaders to attract customers).

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Sample Costing Worksheet to a Buyer

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Important Notes and Considerations

1. What will the market bear and what is the marketing strategy for the product?
2. Bulk buying/increased buying due to increased sales.
3. Increased efficiency of labour due to high-volume production.
4. Possibility of reduction of export price if fixed overhead costs are already included and completely covered by domestic sales (marginal costing).
5. Export incentive rebate.
6. Agent's commission, finance cost, export credit insurance premium and profit margin should be included in Ex Works price.
7. When quoting ex-works you will have to bear the costs for export packaging.

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Sample Cost-Plus Calculation for the End User

Source:  Austrade Canada, Tradeport and Australian Business Limited.