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How to set cost price and sale price for your business

Competitiveness is the ability to win a sale to the competitor, and it requires doing things well. Almost all companies make the same mistake: they use the same costing system, which reins in their Cost Accounting, for all their decisions whatever the scope and projection of them. And as the use of the absorbing system is widespread, the outcome of those decisions is predictable: many of them are wrong. The cost to evaluate the inventory must be different from the one used to set prices or to evaluate if it is convenient to buy or rent or build.

The costing for inventories, the traditional accounting cost, requires the use of the absorbent system because each unit of the product must include ALL the costs involved, directly or indirectly. The costing to set prices should include only those variables included in the act of sales, so structure costs should be excluded. The costing for investment decisions or allocation of resources should include only those variables included in the act of spending plus those implied in the medium and long term of the project.

In the specific case of marketing (price fixing and selling), the considered costs should be only the variables, to which a quota for recovery of structure costs or fixed costs must be added. Variable costs are those of purchase (or production variables) plus those considered as generators of income in the short or medium term considered; This implies a careful management of those variables whose effect exceeds that period (for example, marketing or advertising costs). The punishment of not following these simple rules of costing is to put your company (or product line) in a situation of competitive in front of your competition. It is the reality; it is a very frequent punishment since the misuse of the costing in the pricing and in the commercial strategies is paid with the low or null sale.

Not knowing how to properly use costing implies the following pernicious effects:

  1. A) Sales are lowered or canceled. As prices include extra costs that they should include, it is obvious that they are at a disadvantage compared to their competitors. The product or line of products is being left out of the market.
  2. B) the competitive advantage of having a system of registration and evaluation of commercial strategies is lost. Most of the time, very well designed commercial strategies fail in their final objective, to increase the sales, not because of the strategy itself but because of not being able to scientifically fix the prices or correctly evaluated the circumstances in which it goes developing the strategy.
  3. C) The existing commercial structures are disfigured, or the members of any commercial plan are poorly designed. All for not working with the costs of the channels or the media that correspond.

In our professional practice we find a very high proportion of companies that do not have their well-calculated costs and therefore their fixed prices; Are companies with deficiencies in competitiveness. We are to advance the figure of 90% for the companies that are in this case, or that could be in a better level of competitiveness. In this issue only remember the sentence: success or failure are not results, are options to choose.


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