Analyze costs, cost allocations, and unit margins

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Nobody wants to end up with negative margins. Checking costs and margins is very important, but it should not become the only pricing strategy. We cannot stress enough the importance of avoiding a blind practice of “cost-plus”. Looking at costs should only be done to check expected margins. It is not the basis of our pricing or its starting point.

Another question that may arise when looking at costs is what to do about sri lanka phone number list costs. In pricing, fixed costs and sunk costs should be ignored. They are related to the very fact of being in that business, market or segment. They are about investment. There is no logical connection between a sales decision and a cost that is not dependent on sales volume, such as salaries or rent.

Trying to factor fixed costs into pricing means that it is a strategic decision about whether to be in that business or a related calculation such as ROI, NPV, IRR, payback or break even. This can be done, obviously. But it is not pricing, it is corporate strategy or directly management and finance. Pricing is about optimizing revenue once the decision has been made to compete in a given market or segment.

The next step is to analyse the variable costs to arrive at the unit costs. This has to be done using finance and is essentially a matter of accounting management. It should be noted that the more industrial the company, the more variable costs there will be. Service companies usually have very few variable costs.