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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 113
Foreign Agent/Distributor Product Information and Training
Agents and distributors may require special training to effectively market and service your products.
This is true even if the agent sells similar products. Training will not only enable the agent to better
represent your company’s interests, but also to gain a better understanding of your product.
After-Sales Service Costs
Product warranties and service contracts will enhance your product’s image. In many markets, U.S.
goods and services have a competitive advantage, due to the perception that U.S. companies offer
superior after-sales service. An appropriate after-sales service guarantee can support your sales effort
in the new market. It’s important to note that you should not promise service or warranties, based on
U.S. standards, that you cannot deliver.
After taking these expenses into account, insurance, freight, duties and a profit margin can be added
to arrive at a customer price. Depending on the country, currency fluctuations can significantly affect
profit margin and the final price. As a new-to-export company, you should price products in U.S.
dollars and request payment in dollars.
International Pricing Strategies
High-Price Option
This approach may be appropriate if your company is selling a new product, or if you are attempting
to position your product or service at the upper end of the market. Selecting this option may attract
competition and limit the market for your product while producing large profit margins.
Moderate-Price Option
This is a lower-risk approach as compared with the high- or low-price option. With the moderate-
price option, you should be able to match competitors’ prices, build a market position and produce
reasonable profit margins.
Low-Price Option
This approach may be appropriate if you are trying to reduce inventory, want to quickly establish a
market presence, or do not have a long-term commitment to the market. You will, no doubt, impede
competition … but you’ll also have lower profit margins.
Overall, no single strategy is ideal for every company. As a result, it’s common to draw upon a mix of
options for each market or product.
Pricing Your Product
Setting proper export prices is crucial to your success in exporting. 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 producing goods for export,
plus operating expenses, will likely result in foreign prices that are different from domestic ones. Also,
remember to factor in freight, insurance and other pass-through costs that are included with little or
no markup.
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 114
About Marginal Cost Pricing
Marginal cost pricing is an aggressive marketing strategy often used in international endeavors. The
theory behind marginal cost is that if the domestic operation is making a profit, the nonrecurrent
annual fixed costs are being met. Therefore, only variable costs and profit margin should be used to
establish the selling price for goods that will be sold in the international market. This results in a lower
price for international goods, yet maintains the profit margin.
• The risk of this strategy becomes apparent should the domestic operation become unprofitable
and be unable to cover the fixed costs, as each incremental sale could result in a larger loss for the
company.
• However, this is a complex issue that can yield substantial benefits to your company with
manageable risks.
Factors for Calculating Price
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.
2. Calculate your factory overhead costs, prorating the amount of overhead chargeable to your
proposed export order.
3. Deduct any charges not attributable to the export operation, especially if export sales represent
only a small part of total sales.
4. Be sure operating expenses are covered by your gross margin. Some of the expenses directly
tied to your export shipments may include:
• Catalogs, slide shows, video presentations
• Commissions
• Communications*
• Consultant fees
• Credit checks
• Export advertising
• Freight forwarder fees (usually
pass-through costs)
• Insurance*
• Interest*
• Legal expenses*
• Market research
• Office supplies*
• Packing materials
• Patent and trademark fees*
• Product modification
• Promotional material
• Provision for bad debts
• Rent*
• Taxes*
• Translation costs
• Transportation expenses (usually
pass-through costs)
• Travel expenses
*These items will typically represent the expenses of the total operation, so be sure to prorate
them to reflect only the operating expenses associated with your export operation.
5. Allow yourself a realistic price margin for unforeseen production costs, operating expenses,
unavoidable risks and simple mistakes that are common in any new undertaking.
6. Allow yourself a realistic profit or markup.
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 115
Other Pricing Factors to Consider
Just as in the domestic market, there are additional factors to consider as you set your export pricing
strategy.
Market Demand
Product demand is the key to setting price. Consider these questions as they relate to your foreign
markets:
• 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. This
could include 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, although your company should quote prices in dollars
to avoid the risks of currency devaluations.
Competition
You need to carefully evaluate your competitors’ pricing policies in each foreign market in which you
plan to compete. In a foreign market that is serviced by many competitors, you may have little choice
but to match the going price or even go below it to establish a market share.
If, however, your product or service is new to a particular foreign market, it may be possible to set a
higher price than you would normally charge domestically.
Worksheet
Setting Your Price
Setting Terms of Sale
Price Quotations
The pro forma invoice is the most commonly used document to give price quotations to potential
customers. If you and your buyer are in agreement, it is usually considered a binding sales contract,
although prices may change prior to final sale.
• To prepare the invoice, you should give a detailed description of the product and an itemized list of
fees and terms of sale.
• Prices should be quoted in U.S. dollars to reduce foreign exchange risks.
• The invoice also should indicate the period during which the price quotation is valid, the terms and
method of payment, and delivery terms.
You should be familiar with the common terms of sale used in international trade before preparing
your pro forma invoice. International Commercial Terms (INCOTERMS) are universally recognized in
export and import contracts. These terms refer to the rights and obligations of each party, such as
who pays what costs, when title to goods is transferred, and where the goods should be delivered.
A complete list of current INCOTERMS is published by the International Chamber of Commerce and
should be a permanent part of your business library.
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 116
Sales Contracts
Knowing how to include INCOTERMS in a contract is important, but it represents only one aspect
of the sales agreement. Your and your buyer’s legal rights and obligations should be spelled out in
a single document, which can be incorporated into the final invoice. Frequently, the terms and
conditions are contained on the back of the invoice.
Some of the common terms and conditions in a written sales agreement include the following:
Delivery Terms—Risk of Loss
A “force majeure” clause is standard in most agreements. This clause exempts you from responsibility
where a default in performance is caused by events beyond your control, such as war, acts of God
or labor problems.
Payment and Finance Terms
In addition to defining the terms of payment, provisions should be included for:
• Late payments
• Partial payments
• Remedies for non-payment
When discussing how to get paid, include the cost to your buyer of your preferred method of
payment as one of your considerations.
For example:
• If you insist on wire transfer and the cost of this service is high in the export country, you are adding
to the cost of your product.
Consider optimizing the negotiation process by offering to share fees, if the speed of receiving
payment is important for your cash flow. Also, consider risk insurance protection for the foreign
receivable, if your competition is offering open-account terms.
Warranties
Sales contracts generally describe your goods/services and their features, workmanship and
durability. In some cases, you will be obligated by the law in the country of import to provide quality
and warranty information. Thus, the importer will require you to warrant that the goods meet certain
standards of construction, service and performance.
Acceptance of Goods
Frequently, your buyer will insist upon the right to inspect the goods upon delivery. If found defective,
your buyer/importer can reject them and refuse to pay.
However, the buyer is still liable for country-of-importation duties and other taxes. For this reason, you
may want to require that any right-to-inspection is conducted before export. Your export documents
should reflect any such requirements. In the contract, you should stipulate that the terms for buyer
acceptance and preferences for any inspections will be completed by a qualified third party, preferably
before shipment.
Intellectual Property Rights
Protection of your patents, trademarks or copyrights should be stated in the agreement. However,
protection under the laws of the foreign country is not automatic.
You should not assume that your product is protected. Rather, consult with an attorney on the
advisability and procedures required to properly register your intellectual property in specific countries.
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Taxes
The obligations of both you and your buyer for payment of taxes other than customs duties should
be defined in writing.
Dispute Settlement
Specify how and where any disputes will be resolved, as well as which nation’s law would be applied.
Bear in mind that different countries have varying arbitration laws and systems that may apply in the
case of a dispute.
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 117
Agent and Distributor Agreements
You should also be aware of another option for locating an attorney. The Federal Bar Association
Commerce branch in the destination country for a referral.
• If you need assistance locating one, contact your local bar association or the U.S. Chamber of
international trade and laws of the specified country .
When negotiating and drafting contractual agreements, consult an attorney with experience in
Consult an Attorney
be lost to a foreign competitor with an equivalent product but better payment terms.
It’s important to remember to offer your buyer favorable financing terms—otherwise, the sale could
any negotiations on export financing.
possible, preferably until after the goods are resold. These two conflicting objectives will factor into
you will want to be paid as soon as possible, your buyer will want to delay payment as long as
Terms for financing export sales should be discussed during contract negotiations. While
Define Financing Terms
List specific intellectual property rights granted to the agent or distributor.
6.
termination of the contract.
Describe other types of obligations imposed on the parties, violations of which would justify
5.
Outline protection of intellectual property.
4.
minimum sales volumes and objectives.
Set the length of the term for which the agreement is applicable and agree upon specified
3.
exclusive or nonexclusive sales rights to your product.
Describe the agent or distributor’s sales territory, and whether the agent or distributor will have
2.
Specify the goods and/or services covered.
1.
For example, the contract should:
They also define other aspects of the relationship between you and your agent/distributor.
Agent and distributor agreements spell out the issues noted above in greater detail.
If you choose to use an agent or distributor, you will need to sign a formal contractual agreement.
Export Legal Assistance Network (ELAN)
ELAN is a group of attorneys throughout the United States who specialize in international trade.
.
and the U.S. Department of Commerce sponsor the
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Chapter 8.
Utilizing Technology for Successful Exporting
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 118
Sales Forecasts—First Five Years
Year 1
Year 2
Year 3
Year 4
Year 5
All 5 Years
Market 1:
Units Sold
Sales Price/Unit
$
$
$
$
$
$
Total Sales
$
$
$
$
$
$
Market 2:
Units Sold
Sales Price/Unit
$
$
$
$
$
$
Total Sales
$
$
$
$
$
$
Market 3:
Units Sold
Sales Price/Unit
$
$
$
$
$
$
Total Sales
$
$
$
$
$
$
Total Sales All Markets s $
$
$
$
$
$
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 119
Cost of Goods Sold—First Five Years
Year 1
Year 2
Year 3
Year 4
Year 5
All 5 Years
Market 1:
Units Sold
Cost Per Unit
$
$
$
$
$
$
Total Cost
$
$
$
$
$
$
Market 2:
Units Sold
Cost Per Unit
$
$
$
$
$
$
Total Cost
$
$
$
$
$
$
Market 3:
Units Sold
Cost Per Unit
$
$
$
$
$
$
Total Cost
$
$
$
$
$
$
Total Cost of Goods Sold
All Markets
$
$
$
$
$
$
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7. Accounting Worksheets: Costing, Financial Forecasting and Product Pricing 120
Product Information
NAICS Code
Product
Dimensions
No. of Units
Cubic Measure (sq.in.)
Net Weight (unit)
Total Measure
Gross Weight
H.S. No.
At Your Factory Costs
Direct Materials
$
Direct Labor
$
Factory Burden
$
Cost of Goods
$
Selling Expenses (should be less than domestic sales) ) $
General Expenses (includes cost of money borrowed)
$
Administrative Expenses
$
Export Marketing Costs (product changes, labeling)
$
Profit Margin
$
At Your Factory Price
(use this for calculations on next page)
$
Export Costing
Reference Information
Our Reference
Customer Reference
Office No.
Fax No.
Mobile No.
Customer Information
Name
Address
Email
Website URL
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