EXPORT DISTRIBUTION COSTING & PRICING
A handout to help identify and define export distribution channels, understand the costs and responsibilities of everyone involved in those channels, define export pricing terms, and outline coming costing margins to distribute and market a product from an artisan’s workshop to the end consumer
EXPORT DISTRIBUTION CHANNELS
Understanding common export distribution channels in the global market for handmade products and identifying the channel your product is taking are the first steps to sustainable export costing and pricing.
CHANNEL #1
CHANNEL #2
CHANNEL #3
CHANNEL #1: SELLING TO AN IMPORTER/WHOLESALER
EXPORT DISTRIBUTION RESPONSIBILITIES
Below are the responsibilities of each player in traditional distribution channels (diagram on far left on above image). As distribution channels flatten some of the roles and responsibilities are consolidated, shared or eliminated. Defining responsibilities is an important step in understanding and calculating the costs of export distribution. Who is responsible for each of the activities below? How are they calculated those costs into their margins?
ARTISAN/PRODUCER:
! Develops new products (new techniques, designs, materials) ! Purchases raw materials
! Organizes production
! Maintains quality in production ! Meets production deadlines ! Trains new artisans
EXPORTER:
Export logistics:
! Finances order & handles international payments
! Labels & packs products for export and international shipping ! Completes export documentation & requirements
! Knowledge of export regulations
! Organizes transportation from artisan workshop to port of exit ! Negotiates international shipping
! Insures final quality control Marketing & Customer Relations:
! Manages relationships with international buyers (communications, negotiations)
! Cultivates new customers
! Coordinates custom design projects for buyers
! Develops promotional materials for international buyers (catalogue, website, price list, terms sheet, company profile, artisan profile)
! Promotes products in export trade shows or other venues (showroom, hosting buyers, etc)
IMPORTER/WHOLESALER:
! Imports products into US
! Knowledge of import regulations
! Pays for international shipping and import costs ! Warehouses inventory
! Packages product for distribution to the retailer ! Ships to retailer
! Provides customer service to retailer
! Promotes and markets products (catalogue/website, showrooms, trade shows, sales staff, sales reps)
! Develops custom or proprietary products RETAILER:
! Purchases from wholesaler
! Pays for shipping from wholesaler’s warehouse to retail store
! Maintains store (rent, display, staff, advertising), prints and distributes mail-order catalogues, and/or develops online store
! Provides customer service ! Liquidates unsold inventory CUSTOMER:
! Purchases and enjoys the product ! Pays sales tax
! For online or mail order catalogue sales, pays for shipping from retailer to customer
CHANNEL #1: SELLING TO AN IMPORTER/WHOLESALER
EXPORT PRICING TERMS
The following is a list of common COSTING & PRICING TERMS used in international transactions.
EX-FACTORY
Price of the product as it leaves theor EX-WORKS =
artisan’s or producer’s workshop; this is the producer’s price. This price includes all costs of producing the product. NOTE: Always note the location of the workshop when quoting this price. For example, “Ex-Works Cusco, Peru”FOB =
Price of the product as it leaves the port of exit (airport or shipping port) of the country of origin. FOB = Free On Board. This is the standard export price term. This price includes all costs of getting the products from the artisan workshop to the port of exit, plus export fees, packaging, communication, bank fees and all costs of export. NOTE: Always include the location of the FOB price when quoting this price. For example, FOB Lima, Peru”.LANDED =
Cost of the product when it arrives to the importer’s warehouse. This costs includesinternational shipping, import duties, US customs clearance and transportation inside the US to importer’s warehouse.
WHOLESALE =
Price that the importer/wholesaler sells to a retail store, includes margin to cover all costs ofwholesaler’s responsibilities
RETAIL =
Price at which the end consumer purchases the product, includes shipping costs fromCHANNEL #1: SELLING TO AN IMPORTER/WHOLESALER
STANDARD COSTING MARGINS
There are no scientific formulas or rules to calculate the margins from an ex-factory price (the cost leaving the producer’s workshop) to a retail price (the price the end consumer pays). The most important aspect is to insure that the margins cover all the costs related to distribution and marketing. The following is one example of common margins.
EX-FACTORY or EX-WORKS =
$10.00
+ packaging & labeling + export costs
+ transportation to port of exit + 40%
+ communication & banking fees + quality control
+ marketing & promotion
FOB =
$14.00
+ international shipping
+ US customs clearance, fees and import taxes + 25%
+ transportation to importer’s warehouse
LANDED =
$17.50
+ margin to cover all marketing,
product development, warehousing, + 100%
customer service, inventory and operational costs of wholesaler
WHOLESALE =
$35.00
+ margin to cover all marketing, promotion, sales, customer service, inventory and
operational costs of retailer (including inventory +100%
that does not sell)
CHANNEL #1: SELLING TO AN IMPORTER/WHOLESALER
COSTING WORKSHEET
Use the following worksheet to calculate the costs of distributing a specific product from the artisan’s workshop to the end consumer.
EX-FACTORY or EX-WORKS
$_______________
FOB
$_______________
LANDED
$_______________
WHOLESALE
$_______________
CHANNEL #2: SELLING TO A DIRECT-IMPORT RETAILER
EXPORT DISTRIBUTION RESPONSIBILITIES
Below are the responsibilities of each player in traditional distribution channels (diagram on far left on above image). As distribution channels flatten some of the roles and responsibilities are consolidated, shared or eliminated. Defining responsibilities is an important step in understanding and calculating the costs of export distribution. Who is responsible for each of the activities below? How are they calculated those costs into their margins?
ARTISAN/PRODUCER:
! Develops new products (new techniques, designs, materials) ! Purchases raw materials
! Organizes production
! Maintains quality in production ! Meets production deadlines ! Trains new artisans
EXPORTER:
Export logistics:
! Finances order & handles international payments
! Labels & packs products for export and international shipping ! Completes export documentation & requirements
! Knowledge of export regulations
! Organizes transportation from artisan workshop to port of exit ! Negotiates international shipping
! Insures final quality control Marketing & Customer Relations:
! Manages relationships with a large network of international buyers (communications, negotiations)
! Cultivates new customers
! Develops promotional materials for international buyers (catalogue, website, price list, terms sheet, company profile, artisan profile)
! Promotes products in export trade shows or other venues (showroom, hosting buyers, etc)
! Provides customer service to retailers
RETAILER:
! Imports products into US
! Knowledge of import regulations
! Pays for international shipping and import costs ! Warehouses inventory
! Maintains store (rent, display, staff, advertising), prints and distributes mail-order catalogues, and/or develops online store
! Provides customer service ! Liquidates unsold inventory CUSTOMER:
! Purchases and enjoys the product ! Pays sales tax
! For online or mail order catalogue sales, pays for shipping from retailer to customer
CHANNEL #2: SELLING TO A DIRECT-IMPORT RETAILER
EXPORT PRICING TERMS
The following is a list of common COSTING & PRICING TERMS used in international transactions.
EX-FACTORY
Price of the product as it leaves theor EX-WORKS =
artisan’s or producer’s workshop; this is the producer’s price. This price includes all costs of producing the product. NOTE: Always note the location of the workshop when quoting this price. For example, “Ex-Works Cusco, Peru”FOB =
Price of the product as it leaves the port of exit (airport or shipping port) of the country of origin. FOB = Free On Board. This is the standard export price term. This price includes all costs of getting the products from the artisan workshop to the port of exit, plus export fees, packaging, communication, bank fees and all costs of export. NOTE: Always include the location of the FOB price when quoting this price. For example, FOB Lima, Peru”.LANDED =
Cost of the product when it arrives to the importer’s warehouse. This costs includesinternational shipping, import duties, US customs clearance and transportation inside the US to importer’s warehouse.
RETAIL =
Price at which the end consumer purchases the product, includes shipping costs fromCHANNEL #2: SELLING TO A DIRECT-IMPORT RETAILER
COST MARGINS
There are no scientific formulas or rules to calculate the margins from an ex-factory price (the cost leaving the producer’s workshop) to a retail price (the price the end consumer pays). The most important aspect is to insure that the margins cover all the costs related to distribution and marketing. The following is one example of common margins.
EX-FACTORY or EX-WORKS =
$10.00
+ packaging & labeling + export costs
+ transportation to port of exit + 100%
+ communication & banking fees + quality control
+ marketing & promotion to retail stores + product development & branding
+ packaging for retail store (hangtag, etc) + customer service to manage more customers
FOB =
$20.00
+ international shipping
+ US customs clearance, fees and import taxes + 40%
+ transportation to importer’s warehouse
LANDED =
$28.00
+ margin to cover all costs of working with an overseas supplier, plus marketing, promotion, sales,
customer service, inventory and
operational costs of retailer (including inventory +125%
that does not sell)
CHANNEL #2: SELLING TO A DIRECT-IMPORT RETAILER
COSTING WORKSHEET
Use the following worksheet to calculate the costs of distributing a specific product from the artisan’s workshop to the end consumer.
EX-FACTORY or EX-WORKS
$_______________
FOB
$_______________
LANDED
$_______________
CHANNEL #3: SELLING TO THE END CONSUMER
EXPORT DISTRIBUTION RESPONSIBILITIES
Below are the responsibilities of each player in traditional distribution channels (diagram on far left on above image). As distribution channels flatten some of the roles and responsibilities are consolidated, shared or eliminated. Defining responsibilities is an important step in understanding and calculating the costs of export distribution. Who is responsible for each of the activities below? How are they calculated those costs into their margins?
ARTISAN/PRODUCER:
! Develops new products (new techniques, designs, materials) ! Purchases raw materials
! Organizes production
! Maintains quality in production ! Trains new artisans
EXPORTER & IMPORTER:
Export & import logistics: ! Finances production ! Insures final quality control
! Organizes transportation from artisan workshop to port of exit ! Labels & packs products for export and international shipping ! Completes export documentation & requirements
! Arranges and pays for international shipping ! Imports products into US
Marketing & Customer Service:
! Markets and promotes products to the end consumer at retail shows or online (show costs, travel, sales staff)
! Provides customer service to consumers
! Develops promotional materials, including hang tags, brochures, website or Facebook pages
! Knowledge of import regulations ! Liquidates unsold inventory CUSTOMER:
! Purchases and enjoys the product ! Pays sales tax
CHANNEL #3: SELLING TO THE END CONSUMER
EXPORT PRICING TERMS
The following is a list of common COSTING & PRICING TERMS used in international transactions.
EX-FACTORY
Price of the product as it leaves theor EX-WORKS =
artisan’s or producer’s workshop; this is the producer’s price. This price includes all costs of producing the product. NOTE: Always note the location of the workshop when quoting this price. For example, “Ex-Works Cusco, Peru”FOB =
Price of the product as it leaves the port of exit (airport or shipping port) of the country of origin. FOB = Free On Board. This is the standard export price term. This price includes all costs of getting the products from the artisan workshop to the port of exit, plus export fees, packaging, communication, bank fees and all costs of export. NOTE: Always include the location of the FOB price when quoting this price. For example, FOB Lima, Peru”.LANDED =
Cost of the product when it arrives to the importer’s warehouse. This costs includesinternational shipping, import duties, US customs clearance and transportation inside the US to importer’s warehouse.
RETAIL =
Price at which the end consumer purchases the product, includes shipping costs fromCHANNEL #3: SELLING TO THE END CONSUMER
STANDARD COSTING MARGINS
There are no scientific formulas or rules to calculate the margins from an ex-factory price (the cost leaving the producer’s workshop) to a retail price (the price the end consumer pays). The most important aspect is to insure that the margins cover all the costs related to distribution and marketing. The following is one example of common margins.
EX-FACTORY or EX-WORKS =
$10.00
+ packaging & labeling + export costs
+ transportation to port of exit + 40%
+ communication & banking fees + quality control
+ financing production
FOB =
$14.00
+ international shipping
+ US customs clearance, fees and import taxes + 25%
+ transportation to retail show or warehouse
LANDED =
$17.50
+ margin to cover all marketing,
sales, promotion, warehousing, + 200%
and unsold inventory.
CHANNEL #3: SELLING TO THE END CONSUMER
COSTING WORKSHEET
Use the following worksheet to calculate the costs of distributing a specific product from the artisan’s workshop to the end consumer.
