PREPARING AN EXPORT PRICE QUOTATION by stw87072

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									                FRED
                Fast Resources for Enterprise Development
                                                                   Document # 603
                                                                       April 2002       Document # 603
                                                                                            April 2002

PREPARING AN EXPORT PRICE QUOTATION
Description: Outline for developing 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.
                                                                                    Every billion dollars in
"Marginal cost" pricing is the most realistic and frequently used pricing
                                                                                    U.S. exports generates
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         about 25,000 jobs.
floor beneath which prices cannot be set without incurring a loss.                      Exporting not only
                                                                                          creates jobs, but
There are important principles that should be followed when pricing a product         provides small firms
for export, summarized below.                                                        with new growth, new
                                                                                    markets and additional
COST FACTORS
                                                                                                    profits.
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. Don’t forget to factor in costs for design changes
   necessary for the export market.
2. Calculate your factory overhead costs, prorating the amount of
   overhead chargeable to your proposed export order. 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.
3. Add in the other out-of-pocket expenses directly tied to the export sales,
   such as travel expenses, catalogs, slide shows, video presentations, promo-
   tional 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 modifi-
   cation, 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.
                                 4. Allow yourself a realistic price margin for unforeseen costs, unavoidable
                                    risks, and simple mistakes that are common in any new undertaking.
                                 5. Keep currency exchange rates in mind even if your customers will pay in
For current currency exchange       U.S. dollars. The value of the dollar in the foreign market will have an
rates, visit the New York Fed-      impact on affordability of your product versus competitors products
eral Reserve Bank Web site:         manufactured elsewhere.

http://www.ny.frb.org/pihome/
                                 6. Also allow yourself a realistic profit or mark-up.
statistics/forex12.shtml         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 affordability 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.
                                 A sample quotation form and checklist follows and can be adapted for your
                                 business. The quote worksheet is the foundation for the Proforma Invoice
                                 and should be used for cross-accounting purposes. Items marked with an *
                                 may, or may not, be completed depending on the product and the method of
                                 shipment. For example, if a product is being shipped in a container, items
                                 5-16 would not be applicable. Conversely, if the product is not being shipped
                                 in a container, items 17 and 18 would not be required.

                                 SAMPLE QUOTATION CHECKLIST
                                 1. Customer name
                                 2. Number of units being quoted
                                 3. Description of item being quoted
4. Specifications of item being quoted
5. *Number of shipping units (pallets, slip sheets, skids, etc.) being quoted,
   multiplied by the ...
6. *Width of item, multiplied by the ...
7. *Length of item, multiplied by the ...
8. *Height of item, equals the …
9. *Total cubic inches of item divided by 1728” (the number of cubic inches in
   a cubic foot), equals the ...
10. *Total cubic feet of item divided by unit of revenue tons, as determined by
    the steamship company, which is usually 40 or 35 cubic feet, equals the ...
11. *Total number of pay or revenue tons in measure.
12. *Number of shipping units (pallets, slip sheets, skids, etc.) being quoted,              Note: Steamship
    multiplied by the ...                                                                  companies usually
                                                                                        charge by the units of
13. *Weight of each shipping unit, equals the ...                                         weight or measure,
                                                                                         whichever brings the
14. *Number of pounds, divided by the ...
                                                                                       greatest revenue to the
15. * Unit of revenue tons, as determined by the steamship company, which is             steamship company.
    usually long tons (2240 pounds) or metric tons (2204.6 pounds), equals
    the ...
16. * Total number of pay or revenue tons in weight.
Note: Steamship companies usually charge by the units of weight or measure,
whichever brings the greatest revenue to the steamship company.
17. * Number of units to a pallet, such as cases, if goods are on pallets
18. * Number of pallets to a container, if shipping ocean or air containers
19. Basic cost of the goods
20. Percentage of add-on for the broker
21. Other costs
22. Total EXW cost of the goods (EXW includes raw or processed product
    standard packaging, pallets, banding, shrink-wrap, slip-sheets, slings, spe-
    cial labeling, translation and printing, inspection certificates (phytosanitary,
    health, quality, or export license), bracing or inspecting a container, export
    packaging, freight forwarder’s fees, documentation fees, banking fees)
23. Export Packaging costs such as pallets, crates, etc. (if required)
24. Special labeling, printing and translation costs (if required)
                             25. Inland freight to the port or airport
                             26. Ocean terminal handling charges or terminal receiving charges or any
                                 charges levied at the port. This could also be airline transfer or handling
                                 fees.
                             27. Dollar rate levied by steamship company
                             28. Weight or measure, whichever is greater
                             29. Dollar rate levied by airline company

World Cargo News Online
                             30. Units of weight or measure, whichever is greater
offers the internet's most   31. Total ocean or air freight charges
comprehensive resource for
news and features on the     32. Handling charges (if required)
world of cargo handling
and transportation. It is
                             33. Documentation charges, such as freight forwarder’s documentation
                                 charges or internal charges for preparing documentation
carefully indexed to allow
you to browse for the        34. Fees for legalizing documents or notarization fees
information you need.
                             35. Fees for inspection certificates
www.worldcargonews.com/
                             36. Courier or postage charges
index.htm
                             37. Banking charges for letter of credit costs, freight forwarder banking
                                 charges, etc.
                             38. Currency adjustment factor (CAF), if applicable, and for ocean
                                 shipments only
                             39. Fuel adjustment factor (FAF) or bunker surcharges, if applicable,
                                 and for ocean shipments only
                             40. Destination delivery charges (DDC) or container service charge (CSC),
                                 if applicable, and for ocean shipments only
                             41. Harbor maintenance fee, based upon .125% (.00125) of the FAS value
                                 of the shipment and for ocean shipments only
                             42. Other charges, such as special over the road fees or specific industry
                                 charges
                             43. CFR quotation (cost and freight)
                             44. Insurance premium, if CIF quotation (cost, insurance and freight)
                             45. CIF quotation
                                           SAMPLE QUOTATION
Client Name:______________________________1________________________________________
Number of Units: ___________2____________ Description: _____________3__________________
Specifications: _______________________________4______________________________________
_____5_____ number of units x ____6_____ x _____7_____x _____8_____ = ________9_________
Cubic inches _____9_____ divided by 1728 = ____10____ cubic feet divided by 40/35 = ____11____
OR _____12_____ number of units x _____13_____ weight = _____14_____ number of lbs.
Wt. _____14_____ number of lbs. Divided by _____15_____ lbs. In ton = Total tons ______16______
_____17_____ Number of units to pallet/container _____18_____ Number of pallets/container


                                                                                U.S. DOLLARS
Product cost:                                                                   $ ____19____
Percentage/add on __20__ %:                                                     $ ____20____
Other costs:                                                                    $ ____21____

TOTAL EX-WORKS (EXW)                                                            $ ____22____*
Export Packaging:                                                               $ ____23____*
Special labeling, translation, printing:                                        $ ____24____*
Inland freight:                                                                 $ ____25____*
THC/TRC/stevedore/wharfage/dock charges, off-load, etc.:                        $ ____26____*
Ocean freight (weight or measure)          OR Air freight (weight or measure)
Rate $ __27__ per __28__                     Rate $ __29__ per __30__           $ ____31____
Handling:                                                                       $ ____32____*
Documentation fees (freight forwarder, L/C document preparation):               $ ____33____*
Legalization (Chamber of Commerce, Consulates, etc.):                           $ ____34____*
Inspection fees or Health/Phytosanitary Certificates:                           $ ____35____*
Courier/Postage charges:                                                        $ ____36____*
Banking charges (L/C CAD):                                                      $ ____37____*
Other                  CAF                                ____38____            $ ____38____
                     FAF/BAF                          ____39____                $ ____39____
                     DDC/CSC                          ____40____                $ ____40____
                     Harbor Maintenance               ____41____                $ ____41____**
                     Other                            ____42____                $ ____42____**
                             SUBTOTAL CFR             ____43____
                                                Insurance (plus 10%)            $ ____44____
                             TOTAL EXW/FAS/CFR/CIF                              $ ____45____


* Charges included in the FAS value of the goods
** Charges may be included in the FAS value of the goods


Other information may be important to include on your quotation form such as customer address and
contact information.


Author: Arlene Soto, Wyoming SBDC, Region 4
Source: SBA, CITD




This information is provided by:

Wyoming Small Business Development Center
P.O. Box 3922
Laramie, WY 82071
Phone Toll-Free: 800-348-5194
FRED toll-free number 1-877-700-2220
SBDC website: www.uwyo.edu/sbdc

								
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