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The Basics of Costing & Pricing Limpopo Provincial Treasury Procurement Seminar Thursday 12 th August 2010 By: Allan Govender.

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Presentation on theme: "The Basics of Costing & Pricing Limpopo Provincial Treasury Procurement Seminar Thursday 12 th August 2010 By: Allan Govender."— Presentation transcript:

1 The Basics of Costing & Pricing Limpopo Provincial Treasury Procurement Seminar Thursday 12 th August 2010 By: Allan Govender

2 Overview The Trading Cycle Brief explanation of the concept of Costing Brief explanation of the concept of Pricing Cost differentiation and its effect on pricing Internal & external factors that impact on pricing decisions

3 The Trade Cycle BUY GOODSSELL GOODS Profit Funds the Trading Cycle COST YOUR GOODS Costing Pricing ADD VALUE E.G. Producing products Repackaging Branding process

4 Costing Involves taking into account all the activities/processes that enable one to offer a product or a service. Fixed Costs (costs that remain unchanged with varying sales) Variable Costs (costs that vary with sales) RentRaw materials InsurancePackaging SalariesElectricity/Water AdvertisingDelivery Costs

5 Costing Different businesses involve different activities/processes, therefore costing is done differently. Business TypeDescriptionExamplesFixed CostsVariable Costs ManufacturingYou are making something from raw materials Candles Bakery Furniture Rent Insurance Salaries Raw materials Packaging Electricity ServiceYou are selling your skills, talents, or expertise. Hairdresser Electrician Painter Rent Insurance Salaries ??? RetailYou are buying products, and reselling to the public Spaza shop Grocery store Clothing store Rent Insurance Salaries ??? FIXED COST + VARIABLE COST = TOTAL COST

6 Pricing Is the process of allocating a Rand Value to the product/service you are selling. R PROFITOVERHEADS COST PRICE PRICE = R Manufacturing

7 Pricing cont… The difference here is that you are selling your expertise MEASURED IN TIME. You are selling the know-how as well as how long it takes. PROFITOVERHEADS YOUR COST PRICE = R Service

8 Pricing cont… Calculation of your cost in the Service Industry. Determine Total Monthly Overheads. Determine HOURS SOLD. Calculate COST PRICE per hour COST PRICE/HR MONTHLY OVERHEADS =÷ No. of workdays p.m. X No. of hours p.d. HOURS SOLD Rands/ hour

9 Internal/External Factors Affecting Pricing Competition Costs Supply and demand Image The type of product/service Unique products New technology Product positioning association Environmental factors Price doesnt matter Survival

10 Golden Rules of Pricing Who is your Customer? What can he/she afford? What is your customer prepared to pay? What is your competition doing? Is your product/service different? What is the quality of your service? What are your profit expectations?

11 THANK YOU Contact Details Seda WATERBERG Desimale Building 98 Nelson Mandela Street Modimolle Tel: Fax:


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