Key Terms
Term | Description |
|---|---|
Base Price | The basic product price without break-ups. |
Mark-up | Additional cost incurred for a product to create a profit. |
Fixed Costs | Costs that do not vary for a long period of time are considered as Fixed Costs. For example, Maintenance Costs, Renting or leasing of assets, Property Insurance etc. |
Variable Costs | Costs that are volume-driven or change frequently with time are regarded as being variable. For example, raw materials, labor, social expenses, training etc. |
There are three key facets of this feature:
- Price breakdownEarlier you could associate only a single cost to the product. Because the cost is dependent on various factors some of which might vary, a single field defining the cost was very limiting. With cost models in place, you can define the variable and fixed cost elements and achieve dynamic product costing. This approach is the best way to ascertain what a product should be priced at.
For more information on how you can configure and store the granular costs associated with your product, see Storing the Price of Products.
- Transfer PriceSetting the price for goods or a product between legal entities within an enterprise is known as Transfer Pricing.The transfer price is the price at which different goods and services are transferred between divisions within an organization. For example, a division of Motor Company- A, based in South Africa supplies Gears to their global assembly plant in Boston. The division in South Africa will charge the division in South Africa with the cost of the Gear including their profit margin. This price should be an amount that benefits the organization and also allows each department to have a fair share of their profits.
Majorly, a Business Unit or Factory "sells" to the front end sales team. There are regulatory requirements around how the transfer price is calculated. OECD (Organization of Economic Cooperation and Development) has set some guidelines and most countries follow or add-on to those guidelines. For more information on how you can create a Transfer Price mapping, see Configuring Transfer Pricing.
- Price WaterfallYou can Analyze a Quote by looking at the Price Waterfall chart and Waterfall table for corresponding Line Items and Summary groups. The waterfall chart is a bar graph where Line Item Fields are plotted vertically and Cost is plotted horizontally. For more information, Analyzing Quotes.
We’ll take a detailed look at each of these aspects in the later sections.
