What costs should I include?
Lesley Batchelor OBE is an expert on world trade and a passionate champion of UK exporters. She is also the Director General of the Institute of Export & International Trade, the professional membership body representing and supporting the interests of everyone involved in importing, exporting and international trade.
Here she talks you through the essential steps you need to take when determining what your export price strategy should be.
There are a few things that need to be taken into consideration when pricing your offering.
What is your unit cost price?
This is the key to any export price and once this is understood you can use it as your starting point for any additional costs you may incur when exporting as part of your international pricing strategy.
So, to explain, a very basic unit cost = (total fixed costs + total variable costs) divided by your total units produced.
This will find the starting point for your pricing internationally.
The variables however, will be slightly extended by adding new cost lines such as international product liability insurance, freight costs and any product modifications for new markets.
Be careful to think through all the aspects of the price to be sure of making a profit.
This article on the different pricing strategies available provides more useful information.
Do you need to modify your existing product before starting to sell internationally?
As you will have seen from our Getting started section, you would be well advised to research any modifications you may need to make to your products first to be successful in an overseas market.
It is also important to note that modifications can lead to awkward lead times so, in most cases, the closer your existing product is (or can get) to a standard product that is acceptable overseas, the easier it will be and the less impact it will have on your stock holding and labour costs.
In an ideal world, you will try and standardise your products and your style of promotion to ensure that you are not left odd levels of stock or managing additional shifts at double time to create the right product for each market you export to.
Read this article on modifying your product for more information.
Do you require translation or localisation?
You may well have to translate your web site or materials such as promotional literature or instruction manuals which may impact on your pricing strategy. Allow for these costs when pricing your offering. Open to Export has many articles on translation and localisation, including this one how important a role translation plays when entering new markets, which may be of use.
What about taxes and VAT?
There may be costs of sales tax / local VAT and duties that are part of the world trade agreements that your product might attract before it gets into the country to the buyer. Check out this VAT guide for further guidance.
Do I need insurance?
You may need specific insurances – it’s not just covering the physical product while it’s in transit but your ideas and the financial risk that is contained in the transaction may be something that you chose to cover. This article on protecting your intellectual property abroad provides some important tips.
New product development costs
New product development must be considered as part of the price to enable a company to move ahead and research the next product or variations on this product.
Costs of delivery and documentation
The costs of delivery and documentation will impact on your final export price, especially if dealing with markets that demand certificates of origin or legalisation of documents.
You may also need additional packaging in terms of both protection and also culturally appropriate packs for your chosen market.
It is also important to be sure that the goods are delivered and received in perfect condition. In some cases, this may mean using an Inspection service such as SGS or Bureau Veritas to monitor the process from start to finish. This is most likely in countries where corruption is a problem.
Read the Open to Export article on the different delivery options available for more guidance.
Finally, a word about Incoterms®
Incoterms® 2010 are the latest set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts.
Designed to minimise disputes and to reflect modern day transportation practices, they set out the transportation costs and responsibilities associated with the delivery of goods between buyers (importers) and sellers (exporters). Effectively, they are concerned with establishing where the risk in the goods transfers.
It is wise to use these terms when quoting and to make your customer aware of the impact these may have on your contract and pricing.
We have articles which go into further depth explaining what International Commerce Terms are.