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PREPARING AN EXPORT PRICE QUOTATION PREPARING AN EXPORT PRICE QUOTATION Setting proper export prices is crucial to a successful international sales program; prices must be high enough to generate a reasonable profit, yet low enough to be competitive in overseas markets. Basic pricing criteria - costs, market demand, and competition - are the same for domestic and foreign sales. However, a thorough analysis of all cost factors going into a cost, insurance and freight (CIF) quotation may result in prices that are different from domestic ones. "Marginal cost" pricing is the most realistic and frequently used pricing method. Based on a calculation of incremental costs, 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. There are important principles that should be followed when pricing a product for export, summarized below. COST FACTORS In calculating an export price, be sure to take into account all the cost factors for which you, the exporter, are liable. 1. Calculate direct materials and labor costs involved in producing the goods for export. 2. Calculate your factory overhead costs, prorating the amount of overhead chargeable to your proposed export order. 3. Deduct any charges not attributable to the export operation (i.e., domestic marketing costs, domestic legal expenses), especially if export sales represent only a small part of total sales. 4. Add in the other out-of-pocket expenses directly tied to the export sales, such as travel expenses, catalogs, slide shows, video presentations, promotional material, export advertising, commissions, transportation expenses, packing materials, legal expenses*, office supplies*, patent and trademark fees*, communications*, taxes*, rent*, insurance*, interest*, provision for bad debts, market research, credit checks, translation costs, product modification, consultant fees, and freight forwarder fees *These items will typically represent the cost of the total operation, so be sure to pro-rate these to reflect only the cost of producing the goods for export. 5. Allow yourself a realistic price margin for unforeseen costs, unavoidable risks, and simple mistakes that are common in any new undertaking. 6. Also allow yourself a realistic profit or mark-up. OTHER FACTORS TO CONSIDER Market Demand As in the domestic market, product demand is the key to setting prices in a foreign market. What will the market bear for a specific product or service? What will the estimated consumer price for your product be in each foreign market? If your prices seem out of line, try some simple product modifications to reduce the selling price, such as simplification of technology or alteration of product size to conform to local market norms. Also keep in mind that currency valuations alter the afford ability of goods. A good pricing strategy should accommodate fluctuations in currency. Competition As in the domestic market, few exporters are free to set prices without carefully evaluating their competitor's pricing policies. The situation is further complicated by the need to evaluate the competition's prices in each foreign market an exporter intends to enter. In a foreign market that is serviced by many competitors, an exporter may have little choice but to match the going price or even go below it to establish a market share. If, however, the exporter's product or service is new to a particular foreign market, it may be possible to set a higher price than normally charged domestically. QUOTE PREPARATION An export costing worksheet that may guide you in preparing export price quotations follows. EXPORT COSTING WORKSHEET Reference Information
Customer Information
Product Information
Product Charges
Fees-Packing, Marking, Inland Freight
Port Charges/Document
Freight
Insurance
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