Understanding your unit price and the additional costs of export
What is a unit price?
Before starting to export, it’s useful to first figure out what your domestic unit price is. Put simply, your unit price is the average price at which you sell a certain batch or range of products. If you’re going to sell a batch of 300 staplers for £600, your unit price is £2 – i.e. £2 per unit – no matter what the variance of prices within that batch might be.
In working out what a good unit price for your product is, you take into account your unit cost – the cost of everything required to make and sell all your items divided by the amount of items you sell. This includes your direct costs (labour, materials, packaging costs), and indirect costs (other costs like rent on premises, phone bills, travel costs).
You’ll most likely want a unit price which at least covers your unit cost. The profit you then seek to make from selling a batch of your products then needs to be added to your unit price. Determine your desired average profit per unit (desired profits divided by total number of units sold) and then add that to the price that covers the unit cost to make your total unit price.
There are different domestic and export strategies for pricing in terms of the margins you’re looking to make in the short-term and long-term. We’ll come onto this in the next section.
How does a unit price change when exporting?
When you sell overseas you will start to pick up new costs, both direct and indirect.
New direct costs when exporting include:
- Product modifications (labour and materials)
New indirect costs will include:
- Translation costs for your packaging and marketing materials
- Transactional costs depending on payment methods
- Legal advice structuring agreements with a selling agent or distributor
- Hours researching a market (desk research)
- Travel researching a market (field)
- Phone bills with agents and distributors, liaising with freight forwarders etc.
- Insurance overall policies may need extension for product liability or professional indemnity
Consignment specific direct costs:
- Insurance specific to transportation
- Export licenses and documentation
- Specific packaging for the cargo
You’ll also need to consider what currency you will receive payment for your product in – will fluctuating rates affect your margins?
Exporting your product introduces a range of new costs which your export unit price will now need to cover.
How can I cover these additional costs?
The export unit price you set needs to allow you to maintain or increase your margins, whether in the short-term or the long-term. There are different pricing strategies for the best way of doing this – you may even begin in a new market by selling at a loss-leading price in order to penetrate the market before increasing your price later to maximise profits on your established market share. (Very risky strategy!)
Read these articles on pricing according to a product lifecycle and conducting a break-even analysis for more information.
The Institute of Export & International Trade’s Factors Influencing the Profitability of a Business Bite-Size Chunk provides excellent knowledge on pricing of goods and services, productions costs, customer profiling and more.