Costs to consider when setting pricing in international trade

Setting a price for your goods to sell in international markets is of vital importance. Your price needs to be attractive and competitive for your buyers, but it also needs to cover all your costs and leave you with a sufficient profit margin to make international trade viable for your business.

So, what costs do you need to consider when determining your pricing? All of the following need to be taken into account when setting your price.

Unit cost

Your unit cost really is your starting point. This is what it costs you to produce and will include things like materials, labour, and production costs. You can calculate a basic unit cost by adding total fixed costs and total variable costs and dividing this by the number of units produced. NB these need to include your additional internationalisation costs too.

Transport costs

You will obviously need to physically move your goods from the UK to wherever your buyers are so any cost of transportation, whether it be road, rail, sea, or air, will need to be accounted for.  This is where it is important to understand Incoterms(R) 2020.

Insurance costs

The transportation of goods will usually require you to have appropriate insurance such as cargo insurance or to be sure your buyer has this covered. Product liability and/or professional indemnity insurance may be required to cover issues from use of your products in international markets. There policies that will help you to police and protect your intellectual property.

Intellectual property

You may need to safeguard your designs and ideas by protecting your intellectual property in new markets by extending your jurisdictions to include your new market or to start to explore those protections.

Modification costs

It may be necessary to modify your products to make them appropriate for different markets. This could be functional aspects such as different plugs/voltages on electrical products, or cultural aspects such as design or packaging. The ideal is to be able to make your products as standard as they can be across all markets to keep costs to a minimum. Adhering to local standards or technical registrations can also impact on your final market price.

Translation costs

Unless selling into English speaking territories, you may well need to translate things like instruction manuals or packaging into local languages. You may also need to provide website content for end users. Translations should always be done by a professional translation agency rather than relying on tools such as Google translate.

Taxes, duties, and tariffs

Depending on the countries your goods are entering, and whether they are covered by free trade agreements, your goods may incur additional costs in the form of taxes, duties, or tariffs. These could be minimal or very high, so you need to understand all border costs.

Documentation costs

Again, depending on the nature of your products, there may be documentation costs such as providing certificates of origin, health certificates or signed affidavits to support your product in its new market. 

Currency costs

Trading in different currencies can incur costs such as varying exchange rates or bank charges.

In conclusion

You can see here then that there are many more costs to consider than simply how much it costs you to make your product. Failing to calculate your costs properly can make the difference between making a profit and not making one. You could even make a loss.