Price is the sum of all values paid by consumers in exchange for the benefits of a certain product or service, and is the monetary embodiment of value. In cross-border e-commerce, you will encounter various prices. For example, the cost price refers to the sum of the purchase price, domestic and foreign fees, commissions and other costs; the listing price refers to the price filled in when the product is uploaded: the discounted price refers to the price displayed under the store discount; the transaction price refers to the price paid by the user after the final order is placed. Kazuo Inamori said: Pricing is management. This is because price plays a key role in creating customer value and building customer relationships. Therefore, marketers will regard pricing as a competitive asset. In cross-border e-commerce, under the same conditions, the lower the product price, the higher the click-through rate and product conversion rate.
Before pricing, we must understand the cost structure of the product. It sounds ridiculous that pricing is lower than the cost due to ignorance of the cost of the product, but it happens frequently in practice. According to experience, this situation is often related to ignoring fixed costs.
1. Fixed cost
Fixed cost refers to costs that do not change with production and sales. For example, the monthly rent of the company’s office space and employee wages (including social security benefits) are all fixed costs. Sometimes it is difficult to determine whether it is a fixed cost, and it may be determined by the cross-border e-commerce business owner.
2. Variable costs
Variable costs refer to costs that change directly with the scale of production. In cross-border e-commerce, variable costs include product costs, sales commissions, etc.
Variable costs are easier to calculate than fixed costs because they are often well documented. The decomposition of costs into fixed costs and variable costs is mainly to facilitate the subsequent calculation of the break-even point. Cost accounting is a complex, delicate and necessary task. Cross-border e-commerce companies can assign someone to be responsible for it, and it is best to use financial software to assist. In practice, if the attribution of expenses is not clear, they can be simply and roughly classified as fixed costs, which will lead to certain errors, but it is beneficial for decision makers to fully consider the cash flow in the operation process, ensure the safety of cash flow, and reduce operating risks.