Pricing and costing principles
The concepts of costing, pricing and tendering
Costing Pricing Tendering
Calculation of future cost. It is the way you calculate the total costs of making and selling a product or providing a service. Price is the exchange value of a product or service, usually stated in terms of money. Pricing affects the changes of long term success for a small business because of its implications for profit. Written or formal offer to supply goods or to do a job at an agreed price/ make a formal offer to do a job at a stated price.
The difference between Fixed Cost, Variable Costs and Total Costs
Fixed cost Variable cost Total cost
Fixed costs are the costs that are fixed in total, but variable per unit. For example, the …show more content…
If your costs are increasing, you have several options;
4. Pass higher costs to the customer.
5. Pass some of the increases on and absorb others.
6. Stop selling the product.
For example, if vegetable prices increase vendors usually pass the higher prices on to their customers.
What happens if costs decline (go down)?
If costs decline you have the following options:
7. Reduce your selling price and keep the profits the same. It will also depend on what your competitors are doing.
8. Keep your price the same and make higher profits.
9. First sell stock bought at the higher price, lower your price as soon as you buy in at the lower price.
For example, if the price of potatoes drop, a fast food outlet can choose to give more chips at the same price, drop the price of chips, or keep the price the same in case of future price rises.
3. Supply and demand Two of the most important factors affecting your price are supply and demand.
10. Supply. The amount of a product or service that businesses provide at a given time and a given price.
11. Demand. The amount of a product or service customers are willing and able to buy at a given time at a given …show more content…
Survival
The enterprise sets survival as the major pricing objective if plagued with over-capacity, intense competition or changing consumer needs.
Research
Find examples of three or four new products being introduced to the market in newspapers, magazines, on TV and the radio.
a) Look at their prices. How do they compare with the prices of competing products?
b) Are you attracted to the new products because of their price?
Exercise
Make a list of the factors that might have an impact on the pricing of your product.
Business Activity Levels and Limitations
Business activity levels depend on the size or type of business.
Informal business
• Large turnover, smaller profit margin – informal trader.
Formal business
• Structured price margins - price agreement protects margins.
Bigger profit margin – supermarket.
It often happens that an enterprise cannot satisfy the potential demand for a product. When the economy is in decline, it happens that consumers are not able to satisfy their need for the product because they do not have the necessary money to buy it. These kinds of restrictions indicate that an enterprise must determine its level of activity and identify
The concepts of costing, pricing and tendering
Costing Pricing Tendering
Calculation of future cost. It is the way you calculate the total costs of making and selling a product or providing a service. Price is the exchange value of a product or service, usually stated in terms of money. Pricing affects the changes of long term success for a small business because of its implications for profit. Written or formal offer to supply goods or to do a job at an agreed price/ make a formal offer to do a job at a stated price.
The difference between Fixed Cost, Variable Costs and Total Costs
Fixed cost Variable cost Total cost
Fixed costs are the costs that are fixed in total, but variable per unit. For example, the …show more content…
If your costs are increasing, you have several options;
4. Pass higher costs to the customer.
5. Pass some of the increases on and absorb others.
6. Stop selling the product.
For example, if vegetable prices increase vendors usually pass the higher prices on to their customers.
What happens if costs decline (go down)?
If costs decline you have the following options:
7. Reduce your selling price and keep the profits the same. It will also depend on what your competitors are doing.
8. Keep your price the same and make higher profits.
9. First sell stock bought at the higher price, lower your price as soon as you buy in at the lower price.
For example, if the price of potatoes drop, a fast food outlet can choose to give more chips at the same price, drop the price of chips, or keep the price the same in case of future price rises.
3. Supply and demand Two of the most important factors affecting your price are supply and demand.
10. Supply. The amount of a product or service that businesses provide at a given time and a given price.
11. Demand. The amount of a product or service customers are willing and able to buy at a given time at a given …show more content…
Survival
The enterprise sets survival as the major pricing objective if plagued with over-capacity, intense competition or changing consumer needs.
Research
Find examples of three or four new products being introduced to the market in newspapers, magazines, on TV and the radio.
a) Look at their prices. How do they compare with the prices of competing products?
b) Are you attracted to the new products because of their price?
Exercise
Make a list of the factors that might have an impact on the pricing of your product.
Business Activity Levels and Limitations
Business activity levels depend on the size or type of business.
Informal business
• Large turnover, smaller profit margin – informal trader.
Formal business
• Structured price margins - price agreement protects margins.
Bigger profit margin – supermarket.
It often happens that an enterprise cannot satisfy the potential demand for a product. When the economy is in decline, it happens that consumers are not able to satisfy their need for the product because they do not have the necessary money to buy it. These kinds of restrictions indicate that an enterprise must determine its level of activity and identify