EXPORT PRICE

Method to determine the export price

The exporter should have a precise knowledge of the cost that have occurred, manufacturing or marketing a product dedicated to the export.

This is the starting point to determine the most convenient price. Under normal conditions of a free market the price should not be any lower than the export-costs. Therefore, the fixation of the sales price lies between the inferior limit (cost) and a negotiated superior price, which is settled by the business partners.

The calculation of the export price should consider other elements than those that are considered for the pricing of the national market.

The manager should carry out an analysis, in which he defines his strategies and takes care of not losing liquidity, programming a rotation of his financial flow that allows him to have a competitive price of export.

Variable costs per unit
A way to distribute the costs that are integrated to the product is to consider the following types:

a) variable costs of production: they include all costs; from the elaboration of the product until its arrival in the warehouse.

- Row material: Cost of ingredients or products that are integrated in the final product. These costs depend on the quantity of the final product.
- Human labor: varies according to the specialization degree and if it is hourly paid or on a contract bases.
- Other variable costs that occurred producing the product and that are not included in the above mentioned ones.

b) Commercialization costs: include all expenses made, to achieve that the client acquires the product. These costs occur while carrying out:
- Investigations and market studies.
- Promotion of sales.
- Publicity.
- Sales statistics.
- Sales and their administrative costs.

Among these activities there are some general expenses that occur, independently of if one sells or not; these are denominated constant expenses of commercialization.

c) Export costs: they are the sum of the expenses that occur while exporting a product. These costs change, depending on the negotiation or quotation of the business partners.
" Constant costs that originate to maintain a unit or the export management (salaries and rents, among other).
" Variable costs caused by the concrete realization of the export.”

The variable costs per unit of a product to be exported are composed of the variable costs of production and of the variable costs of export. The variable costs of commercialization should not be included, since their main purpose is the commercialization in the national market.

The company that seeks to export should carry out a detailed financial analysis to determine their resources and to find out if it really is able to compete with the prices of the world market.

Method to define the export price

There are two procedures to determine the export price: In the first procedure you take the costs of the product when it leaves the production plant and add the above mentioned concepts in order to determine the export price. In the second one you take the price of the national market and subtract the concepts that are calculated separately, to adjust them to the export product.
1. Pricing: Price based on the market-competition
In this method a price is determined for each market, based on demand and offer and on the prices of similar products in this area. The products profit will vary from time to time depending on the advantages and disadvantages of the product in comparison with similar ones and in accordance with the stability of the market.

For who begins to export, this method is not the most appropriate since starting from a bases price there will be variables that are not known and some of them will be out of the exporter's control.

2. Costing: Price based on costs
Starting from the production cost, a margin of utility is added, besides fixing the sale strategy that contemplates the variables, volumes, prices, times and financings; to know the net profit and to later add the expenses that have occurred to the price Ex-Work.

The example that is described next is merely indicative. Not all of the five expenses have to occur in an export. If they are not included in your calculation, substitute them by others that do appear in your company to calculate the Ex-work-price.

1. Containers and packing for the export.
2. Labels, identifications or special forms for the export (regarding the packing).
3. Optimization of the load (regrouping.).
4. Inspection, certification and export verifications that have to be carried out in the production plant or warehouse of the company.
5. Previous local storage (if it is required).
(1 + 2 + 3 + 4 + 5 + price of the product
to export = Price Ex-Works).
6. Procedure of documents.
7. National transport including maneuvers, human labor and the rent of special equipment (if necessary).
8. Export tax (if required) and rights of “Trámite Aduanero”.
9. Dispatch tax of export.
10. Insurance of the merchandise until their delivery to the means of international transport.
(Ex-Works + 6 + 7 + 8 + 9 + 10 = Free Carrier; Free Alongside Ship)