PRICING HOW DO WE DETERMINE THE SALE PRICE OF PRODUCT OR SERVICE

(SIMPLE & PRACTICAL APPROACH FOR SMALL & MEDIUM BUSINESS)

By

Cheruku Srikanth

IDOS CORP

Sale price

¤  Price at which we sell our products or services

¤  Three types: ¤  Loss

¤  Break-even

¤  Profit

¤  Subject to local taxes

1– DETERMINE COST / determinar el costo

AVERAGE COST / COSTO PROMEDIO

SAMPLE

ITEM OF COST MONTH 1 MONTH 2 MONTH 3

Rent / GASTOS DE ALQUILER 450.000 450.000 450.000

Salario 750.000 750.000 750.000

Stationery / artículos de oficina 50.000 30.000 60.000

Marketing / DESARROLLO EMPRESARIAL

150.000 250.000 100.000

Travel / VIAJES 100.000 70.000 120.000

Others 75.000 50.000 90.000

TOTAL 1.525.000 1.505.000 1.470.000

1.525.000+1.505.000+1.470.000 -------------------------------------------

3 =1.500.000

COSTO PROMEDIO =

LOSS / BREAK EVEN / PROFIT

COSTO = 15.00.000

LOSS STRATEGY

Discount sales are charged as marketing expenses. Induces customers to buy other items where shop has a margin.

BREAK EVEN STRATEGY

PROFIT

PROFIT

PROFIT

COST ALLOCATION

ITEM OF COST PRODUCT 1 PRODUCT 2 PRODUCT 3

Rent / GASTOS DE ALQUILER 20% 30% 50%

Salario 10% 10% 80%

Stationery / artículos de oficina 5% 15% 80%

Marketing / DESARROLLO EMPRESARIAL

10% 5% 85%

Travel / VIAJES 5% 5% 90%

Purchase price

Others 0 0 100%

TYPES OF PRICES

CASE STUDY 1

CASE STUDY 2

CONTRACT PRICING

CASE STUDY 3

CASE STUDY 3 (cont’d)

•  Salary •  Fringe •  Overhead •  G&A •  Fee (contract type/risk, market condition)

CASE STUDY 3 (cont’d)

•  Assignment of risk is the biggest difference between the three types of contracts

•  Risk analysis is key to the selection of an appropriate contract type to control costs, enhance competition and performance

•  Negotiation of contract price is closely related to the contract type

THANK YOU