Training workshop on market development and marketing, Training workshop on market development and marketing, product design and development Cost calculation, marketing material and order handling Cambodia Export Diversification and Expansion Program (CEDEP I) Training workshop By Alfons Eiligmann Date: Oct. 21, 2013
Overview Cost calculation Contents Price list and other sales material Order handling
In Business-to-Business, selling is a stepwise process After After Prepare Prepare Promote Promote Sell Sell Deliver Deliver sales � Choose � Prepare � Submit � Produce � Check � Ship high- marketing quotation customer � Get order potential material satisfaction � Contact � Build long- export confirmation products buyers term � Plan � Meet relationship production personally � Calculate prices
Products and Production Select high potential products and calculate production capacity • Which products can you easily produce in larger quantity? • • Which products can you produce for a particularly reasonable price? Which products can you produce for a particularly reasonable price? • Which product designs are most appreciated by international customers? Assess Production Capacity for Selected Products No. of reliable Quantity per Quantity per Total and capable craftsman/day craftsman/month quantity/month (quantity per craftsmen craftsman x no. of craftsman x no. of craftsmen) Product 1 Product 2 Product 3 Product 4 Product 5
Price calculation Cost-based pricing – vs – Market-based What are the pricing two generic • Calculate product prices based on production costs production costs possibilities to possibilities to • Calculate product prices based on market calculate prices prices? Market-based pricing What are typical • Depends on quantity, company, product, no. of intermediary traders mark-up factors • • As a rule of thumb, you may use a factor As a rule of thumb, you may use a factor in international of 1:5 for handicrafts between fob-price handicrafts and retail price trade? • Check prices online or when visiting shops abroad and compare retail catalogues.
Example market-based pricing Example of Calculation: Table Runner FOB € 10.00 Wholesaler FOB price manufacturer FOB price manufacturer € 10.00 € 10.00 Freight cost/Financing/bank fees € 2.30 Cost price € 12.30 80 % mark-up on the cost price € 9.84 Wholesaler‘s selling price € 22.14 A) Wholesaler‘s selling price to retailer round up € 23.00 Retailer 100 % mark-up for cost covering and approx. 10 % profit € 23.00 Total € 46.00 VAT 19 % € 8.74 Consumer price € 54.74 B) Retailer‘s selling price to consumer round up € 54.50
Cost-based calculation handicrafts Calculate Production Costs Material Cost/Unit Quantity needed/piece Cost/piece Raw material 1 Raw material 2 Other small material Other small material Other small material A) Total material cost Labour Cost/hour Hours needed Cost/piece Dyeing Loom set up Weaving Sewing Packing B) Total labour cost C) Total direct cost per piece (A+B) Indirect cost + x% mark-up for indirect cost + x% mark-up for rejected products/raw material price fluctuation/wastage + x% mark-up for taxes + x% mark-up for expected profit margin D) Product price
Calculation of indirect costs Calculate Mark-up for Indirect Costs Indirect costs per year � Office and production facilities rental � � Labour costs office/administration/permanent employees � Office running costs/communication � Marketing expenses � Repair works � Transport/Car � Insurance � Other costs Total indirect cost/year Indirect costs per piece Indirect costs per piece � Low production quantity (… pieces/year) = Indirect costs/piece � Medium production quantity (… pieces/year) = Indirect costs/piece � Large production quantity (… pieces/year) = Indirect costs/piece
Use the cost calculation for increasing your competitiveness Example scarves: What can you What can you 1. 1. Raw material cost (silk) are important. New Raw material cost (silk) are important. New do if your purchasing source or purchasing of larger quantity can reduce raw material costs products are 2. Sizes can be reviewed to reduce labour costs too expensive? (e.g. scarves of 0.35 x 1.7 m instead of 0.4 x 1.8) 3. Combination of different kinds of raw material can mean different costs (fine silk/raw silk) 4. Some scarves are complicated to weave (e.g. IKAT) and mean high labour costs. Concentration on scarves which can be produced quickly increases competitiveness. 5. Uni-colour scarves can be offered as a basic cheap item.
Overview Cost calculation Contents Price list and other sales material Order handling
Preparation of a wholesale price list Example of a wholesale price list Collection Transport cost per piece, express Wholesale price – Ex works Name courier door-to-door Pictures Product Code 200 < 500 200 < 500 Dimensions Dimensions < 200 pcs > 500 pcs 200 pcs 500 pcs 1000 pcs pcs Weight • Usually, an exporter indicates an FOB price. • Some buyers only expect an FOB price and are used to ask their freight forwarder for handling transport issues. forwarder for handling transport issues. • Other buyers are less used to import goods from a country like Cambodia and prefer an offer including transport cost. • In case of export promotion activities in Cambodia in the past, the transport costs calculation was key for getting important buyers.
INCOTERMS 2010 Code Meaning Indication What are the most important Location of the EXW EX Works : Price at factory gate production site production site INCOTERMS INCOTERMS used for Free Carrier: Including transport to the first freight forwarder (Carrier) named handicraft Location from which by the client and preparation of all FCA goods will be customs clearance documents. exports? shipped � The seller is responsible for customs clearance and related costs Free On Board: Including transport to the harbour and preparation of all Harbour from which Harbour from which customs clearance documents. customs clearance documents. FOB goods will be � The seller is responsible for shipped customs clearance and related costs � Normally only for sea freight Cost Insurance Freight: Under this condition, all costs for overseas Location to which transport and insurance until the agreed CIF goods will be destination are included shipped � The seller is responsible for transport and insurance costs
INCOTERMS 2010 Unload Unload Transport from truck Landing Transport Landing onto trucks Export- to at the charges at to charges at from the Transport Entry – Entry – Load to duty exporter‘s origin‘s origin‘s importer‘s importer‘s importer‘s to customs duties and Incoterms truck payment port port port port port port destination clearance taxes Insurance EXW No No No No No No No No No No No No FCA Yes Yes No No No No No No No No No No FAS Yes Yes Yes Yes No No No No No No No No FOB Yes Yes Yes Yes Yes No No No No No No No CFR Yes Yes Yes Yes Yes Yes No No No No No No CIF Yes Yes Yes Yes Yes Yes No No No No No Yes CPT Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No CIP Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes DAT Yes Yes Yes Yes Yes Yes Yes No No No No Yes DAP Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Source: Wikipedia
Calculation of parcel transportation costs Parcel service transport costs are indicated separately and calculated on the following basis: • For EMS delivery: − Weight per item plus 10-20 % security margin multiplied by the number of items − Plus weight of packaging ( .. kg carton for ... pieces, ... kg carton for ... pieces) Plus weight of packaging ( .. kg carton for ... pieces, ... kg carton for ... pieces) − Application of the next kg category parcel price available in the EMS price list − Division of the parcel costs by the number of items. • For DHL delivery: − Calculation like for EMS – but based on the latest DHL price list − In addition to freight costs indicated in the DHL price list: 17 % for fuel surcharge and 2%VAT, add in total 19 % − Plus insurance for the parcel (1.5% of the parcel value or minimum 10$). • For TNT delivery: • For TNT delivery: − Calculation like EMS − Plus insurance for the parcel (1.5% of the parcel value or minimum 10$). − TNT prices include already fuel surcharge and VAT. � Note: Examples and conditions in 2008. Conditions need to be reviewed and up-dated. Use latest price lists and conditions for your calculation.
Calculation of Airfreight Transport Costs Example Airfreight Costs Calculation Weight per piece 0.2 kg No. of pieces in one box 100 Weight of products in one box 20 kg Weight of the box/packaging material itself 3 kg Total weight 1 box/100 pieces 23 kg Airfreight rate/kg 5 $ Airfreight costs for delivery of 1,000 pieces 1.150 $ Transport insurance costs for delivery of 1,000 pieces 100 $ Customs declaration and/or other costs charged 250 $ Total shipment costs for 1,000 pieces 1.500 $ Shipment costs per piece 1.5 $
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