What is a selling price?

The conditions under which the price applies are set out in the quote. Between businesses it is normally stated excluding VAT. What it covers depends on the agreement: packaging, transport to an agreed delivery point, certificates and inspection reports. One-off costs such as programming or a fixture can sit in the piece price or appear as a separate item on the quote. The difference between selling price and cost price is the margin.

What does the selling price depend on?

A selling price can be set in different ways. With cost-plus pricing you start from the cost and add a mark-up or a target margin. With market-based pricing you start from what comparable work fetches or from the customer's target price, and the margin is the result. Most shops mix the two: the cost sets the floor below which you lose money over time, the market the ceiling of what the customer will pay. Between them, workload, the importance of the customer, the risk in the work and follow-on orders all play a part.

What happens when the selling price is typed over the cost price?

Record cost and selling price separately. Once the selling price overwrites the cost, you can no longer check how much margin an order carried or why two estimates differ. The cost per piece differs per quantity break because one-off costs are spread over more or fewer pieces; the selling price per break usually follows, but not necessarily in the same proportion. When a customer asks for a lower price, a cost broken down per item shows which choice gives room: another quantity, customer-supplied material or a longer lead time.

What is the selling price often confused with?

The cost price is what the part takes you to make, the selling price what you ask for it; the margin is the difference between the two, not a third price. And a target price is what the customer wants to pay; it can sit above or below your selling price.