How To Set Prices Of Goods For Export Without Making Any Losses

How To Set Prices Of Goods For Export Without Making Any Losses | Image Source: Pixabay

Correctly pricing goods for export can be the difference between profitability/growth and losses/failure. When you price your products right, you take into account almost all the expenses that can be incurred, and in the process, ensure your business is moving forward with every transaction executed.

A lot of exporters make the mistake of underpricing their commodities out of the desperacy of trying to close a sale. In the process of doing this, they end up shipping substandard goods when they realise they’re at a rising loss, and eventually, both them and the buyer loses their investments in the transaction.

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It’s important that you must first factor in all the costs that can possibly go into the entire transaction cycle, assess the quality standard you plan to supply, understand the value you have to offer, and then price appropriately in accordance to the value delivered in terms of product quality, time spent, professionalism, relationship, peace of mind for the buyer, and the growth of both your business and the buyer’s business.

If you want to learn everything about how to set the prices of goods for export without making any losses, you should read on.

See Also: 9 Critical Shipping Documents Required In Most Export Transactions

 

So What’s The First Thing To Know When Preparing To Price Commodities For Export?

First, commodities are mostly priced per Metric Ton, and one Metric Ton is equal to 1,000 kilograms. So if you are exporting Dried Split Ginger, for instance, depending on the quality and more factors, the price could be $2,000 per Metric ton; and since 24 Metric Tonnes of Dried Split Ginger fills up a 40 feet general-purpose shipping container, the value of the transaction would be $48,000.

 

Things To Cover When Setting The Prices Of Commodities For Export

Since the unit of measurement has been explained, the price of a commodity is highly dependent on four different factors:

1). The Type Of Commodity Requested:

The commodity requested is the first step in determining how to best set the price of the commodity. Some commodities are scarce, exotic, or vastly abundant. Some have symbolic representations in certain cultures and many mean absolutely nothing but just food or a basic utility.

Depending on the commodity requested you can use this as the first yardstick in determining what would go into costing the commodity.

2). The Quality Of The Commodity Requested:

After determining the type of commodity requested, you need to know the exact quality of the commodity that is required by the importer. This is important to be able to determine how much time & resources would go into sourcing & processing the commodity to the required standards.

Some things to look out for during pricing based on the quality—assuming you’d be using a leased processing facility—are:

  • Cost of procuring the raw commodity per metric tonne
  • Flat rate cost of processing the raw commodity per metric tonne
  • Cost of transporting the raw commodity from the pickup location to the processing facility
  • Cost of loading the raw commodities onto the truck from the pickup location
  • Cost of unloading the raw commodities from the truck at the processing facility
  • Cost of electricity (if you’re required to cover the electricity bills which would likely be to power an electricity generator in a remote location)
  • Cost of purchasing sacks to bag the goods
  • Cost of printing on sacks to bag the goods
  • Cost of sewing/sealing each sack containing the goods
  • Cost of reloading the raw commodities onto a truck at the processing facility for transportation to the loading port
  • Cost of government taxes and levies required for transporting the goods

If instead, you plan to procure the processing machines and handle the processing yourself without paying processing fees to anyone, some things to look out for during pricing the processed product to determine the flat rate processing fee per metric tonne are:

  • Cost of procuring the raw commodity per metric tonne
  • Cost of renting a property to set up a processing facility
  • Cost of transporting the raw commodity from the pickup location to the processing facility
  • Cost of loading the raw commodities onto the truck from the pickup location
  • Cost of unloading the raw commodities from the truck at the processing facility
  • Cost of electricity (if you’re required to cover the electricity bills which would likely be to power an electricity generator and the machine in a remote location)
  • Cost of fixing machine breakdowns
  • Cost of purchasing sacks to bag the goods
  • Cost of printing on sacks to bag the goods
  • Cost of sewing/sealing each sack containing the goods
  • Cost of reloading the raw commodities onto a truck at the processing facility for transportation to the loading port
  • Cost of government taxes and levies required for transporting the goods

The cost of the processing equipment is not included in the cost of the product because the equipment is an asset and not an expense.

See Also: 18 Important Questions To Ask A New Commodity Buyer To Avoiding Wasting Your Time

3). Price & Where The Commodity Would Be Sourced From:

Since you know how to calculate the costs associated with processing the goods, the next step in determining costs is where the raw commodity will be sourced from.

When deciding where to procure raw commodities, you need to consider the following factors and expenses:

  • Cost of travelling to the sourcing location per personnel
  • Logistic expenses of transporting the goods within various parts of the location and out of the location
  • Cost of renting a temporary collection point for all the goods
  • Accommodation, feeding, & living expenses
  • Proximity to loading port or processing centres
  • Security
  • Cost of paying a local guide(s)
  • Cost of paying local touts
  • Cost of buying the commodity in the location per metric tonne or per bag

4). Local & International Logistic Expenses:

The next step in determining the cost of the commodity is to determine all logistic expenses involved in the transportation of the goods. The expenses to calculate are:

  • Trucking expense from the village or local markets to central collection/pick up point
  • Trucking expense from the pickup point to the loading port
  • Road sorting expenses from the pickup point to the loading port
  • Local shipping charges
  • Sea freight expenses
  • Shipping agent fees/expenses
  • Clause A Marine insurance from pick up point to port of discharge
  • Special certificates

See Also: 9 Common Challenges You Could Face When Exporting Commodities

5). When Exactly The Commodity Is Required:

When the commodity is required goes a long way into factoring the costs of the final commodity for various reasons. Some of them are:

  • To determine the cost of the commodity at the time of purchase based on the projected actual local price of the commodity at the time
  • To determine if any expedited costs would need to be paid to speed up the time of getting the goods ready and getting into the port faster than other shipping containers

6). Banking, Consulting, & Office Expenses:

After calculating the time-based expenses you’d incur, there are a couple of banking, consulting, & office-related expenses you may or may not be required to cover depending on the dynamics of your transaction. They are:

  • Loan interest rate repayment
  • Investors trade finance interest rate repayment
  • Broker commission
  • Letter of Credit charges
  • Local bank advisory fee charges for LC and other banking expenses
  • Local FX inflow charges
  • Exchange rate implications on profitability
  • Government export taxes
  • Courier charges for export document
  • Document printing charges
  • Product inspection charges & inspection certificate

See Also: What To Do If An International Buyer Won’t Pay For The Commodities You Exported To Them

7). Miscellaneous Expenses:

During the course of the entire purchase and shipping process, several unexpected expenses always come up, and it’s important that you’re prepared for them. As a rule of thumb, we recommend that you factor in 10% of the total already calculated expenses as miscellaneous expenses or 2-5% of the total pre-calculated revenue as the miscellaneous expenses.

By doing this, you’ll be able to handle sudden expenses that come up and that could affect your profitability.

8). The Average International Price Of The Commodity:

After calculating your total expenses to determine the exact cost price of your product, you need to then get the current average international price of the commodity to determine how best to price your product.

If the international price of the commodity is very high and your cost price low, it may be smart for you to sell at 20% lower than the international price in other to gain the attention of prospective buyers and in the process, close more deals and generate more revenues.

But if the international price of the commodity is lower than even your cost price before you’ve factored your profit, you may be better off venturing into the sale of a different commodity altogether or you’d have no choice but to fix the price of your product at a reasonable profit margin without shortchanging yourself.

See Also: 9 Important Things To Know Before You Ship Agricultural Products

 

What Profit Margins Should You Always Look To Get?

The profit margin you target should always be determined when comparing your cost price to the average international selling price to the market the importer is from.

For example, dry split ginger to India as at October 2020 is around $2,200/mt while in too many parts of Europe it is around $2,800/mt. If your profit margin to ship to India is around 10% and to ship to Europe around 40%, you could target the European market but at a 25-40% profit margin so that you can undercut the competition from other parts of the world.

If you’re doing small-volume shipments of 1 to 2 containers for a first-time buyer, never go below 12% profit margins as you’re trying to build a relationship but must be profitable to an extent. If you’re doing 5 or more containers, you can target even 10%, as 10% of $1,000,000 is $100,000 and a good way to start a relationship with a client that can last a lifetime if handled right.

After the first shipment, the buyer would trust you so much more and would tend to pay more for your services as they’re certain you’d deliver quality goods every time and also provide them with peace of mind, afterwhich it would be easier to target 20-30% profit margins going forward.

An export cycle from many parts of the world including Nigeria takes about 60-90 days for full completion. So it’s important that you’re making a reasonable profit margin per shipment or you may just be better off doing local supplies that could net you more profits if the export profits are not attractive.

If you can, always target bulk volume exports as that is why the true wealth of the export business is because companies who make a 10% profit margin on a $100 million dollar transaction are walking away with $10 million.

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To Sum It Up

Never shortchange yourself out of a desperacy to sell commodities by all means. It mostly always ends up badly. It is important that you calculate every single expense you might incur in the supply chain process, factor miscellaneous expenses, and target the right type of buyers.

Cheap buyers mostly never care about you, but buyers who are willing to pay more are willing to build great long-term relationships, and with them, you can someday build a great international trading firm.

Also, look at the bright side, sometimes all the expenses you incur will be less than all you have calculated and your profit margins may yet rise by 5-10% more.

See Also: 4 Ways To Quickly Transport Container Cargoes To The Port In Nigeria

 

What are your thoughts on how to price goods for export without making any losses? Let me know by leaving a comment below.

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