Knowing what to charge for your product in an overseas market is (obviously) an important part of your export plan – and not quite as simple as it sounds. Teresa Baffa, an International and Trade Business Manager at Barclays, says: “It’s a mistake to guesstimate an extra margin when exporting.” You could lose sales, money, or both. Here’s how to take the conjecture out of costing.
Step 1: The factors that matter checklist
Factors that can increase your costs when exporting are:
- Additional packing, packaging, marking and labelling
- Creating new internal processes
- Staff time and effort spent learning the new processes
- Transportation and freight costs
- Marketing costs
- Insurance costs
- Currency exchange rate movement
- Additional bank fees
- Customs clearance and local taxes
- Storage and distribution abroad
Factors that can decrease costs include:
- Government or other forms of export subsidies and grants
- Economies of scale gained by expanding into new markets
Step 2: Settle on a price
“Whilst there are a range of different pricing methods, the following are ways that prove successful with most new exporters,” says Mandy Lockett, International Trade and Trading Manager of East Lancashire Chambers of Commerce.
- Cost plus: You add together the total cost of producing the product, every additional cost of exporting, a percentage for profit and a margin for negotiation. The margin will depend on what the market will stand and your strategy for winning market share.
- Penetration pricing: To make an entry into your new market you offer introductory discounts on your standard prices for a limited period only.
As no single formula can cover every exporter’s requirements, the key drivers determining your price should be cost, demand and competition. “You should evaluate each of these in line with your objectives for the export market you are pricing for,” says Mandy Lockett.
She continues: “Most exporters view exporting initially as a secondary market and therefore have lower expectations of market share and sales volume. Trade fairs and exhibitions are great places to test run your pricing and get a better feel for the market you’re entering.”
Step 3: Double check your decision
“Seek as much help as you can from as many different parties as possible to set your price correctly,” says Teresa Baffa. “UKTI, your Barclays Business Manager, the local Chambers of Commerce, your accountant and freight forwarders are all useful sources of information.” Remember, it’s better to get it right first time with the help of old hands then having to re-price later.
And keep your eyes on the prize. As Lesley Batchelor, Director General at the Institute of Export, says: “There’s a lot of good advice out there to call on and while exporting may not be as easy as home sales when you get it right it’s a lot of fun, and profitable too.”
- Refine your export plan by subscribing to our Barclays Business Abroad package. You’ll be given access to an immersive workshop ‘Introduction to International Trading’ that’ll help you successfully navigate the world of international trade.