9.00 Explain pricing strategies for
making effective pricing decisions.
D. MARKETING A
SMALL BUSINESS
9.03 Calculate the
selling price of
merchandise and
services.
Profit


Revenue remaining after the expenses of
running the business have been deducted.
Factors that affect profit:
–
–
–

demand
prices
chance
-- business expenses
-- the economy
Ways to increase profit
–
–
increase worker efficiency-- increase sales
reduce business expenses
Cost of Merchandise Sold



The amount paid by a
business for products
purchased for resale or
for use in the
production of other
goods.
The first expense that
must be paid.
Is deducted directly
from sales revenue to
determine gross profit.

Formula (used on the
income statement):
Sales Revenue
- Cost of merchandise sold
Gross profit
- Business Expenses
Net profit
Basic Pricing Calculations
Retail Price = Cost + Markup



RP = C + MU
13.50 = 10 + 3.50
An item costs the business $10 and has a
markup of $3.50. What is the retail price?
Variations of the equation

C = RP – MU

The retail price of an item is $30.00 and the markup is $10.00.
What is the cost of the item?
20 = 30 -10

or
MU = RP – C
Keystone Pricing
–
–
A common pricing
method used by
retailers.
Retail price is
calculated by
doubling the cost of
the merchandise.
 cost
= $25.00
 KMU = $25.00
 retail price = $50.00
Markdowns

The most common type of price change

Used as a tool to stimulate sales, dispose of slow
moving products, meet competitor’s prices, and/or
increase customer traffic
Markdowns are expressed as a % of net sales.






MD% cannot be calculated until goods are sold because they are
based on net sales.
Original selling price X MD % = MD, OSP– MD = Final Selling price
The original selling price of an item is $100.00 and the
markdown is 30%. What is the markdown and final sales
price of the item?
100 x .3 = $30 (MD)
100 – 30 = $70 (FSP)
Reasons for Markdowns
Buying errors
 Pricing errors
 Special sales
 Broken assortments

Quantity Discounts

Reductions in price given by
manufacturers/wholesalers when a large
or specified quantity is purchased.
–
–
Cumulative quantity discounts: Based on
total purchases over a specified period of
time (whole purchase).
Non-cumulative quantity discounts: Given
for a one-time purchase or shipment (on
specific product like envelopes).
Trade Discounts

Also called functional discounts

Offered to channel members for performing
certain functions like storing or record
keeping
Can be stated as a percentage off the list
price or as a series of percentages off the
list price. Example: “List price less 45%”
or “List price less 30%, less 15%, less 5%
($2000 less 30/12/5)”
2000 x .3 = 600 x .12 = 72 x .05 = 3.60


Cash Discounts
Offered to buyers
as an incentive
for paying the
invoice quickly.
Cash Discounts

Ordinary dating
– based on the
date of the
invoice
– 2/10, net/30

buyer receives a 2%
discount if the
invoice is paid within
10 days, or the full
(net) amount is due
in 30 days

Advanced dating
– indicates that the
payout period does
not begin until the
date indicated in the
terms
– 5/10, net/30, June 15

buyer receives a 5%
discount if the invoice is
paid within 10 days of June
15, or the full amount is due
30 days from June 15
Cash Discounts
EXAMPLE

Receipt-of-Goods dating
– The payout period does
not begin until the buyer
receives the goods from
the seller.
– 2/10, net/30, ROG

2% discount if the invoice
is paid within 10 days of
receiving the goods, or
the full (net) amount is
due 30 days from when
the goods are received







A retailer received a shipment
of goods on January 5 for
$700.00. The invoice is dated
December 9 and the terms are
2/10, net/30, ROG.
When must payment be made in
order to receive the discount?
January 15
What amount do you owe if you
take the discount?
686
What is the latest date for full
payment?
February 4
Cash Discounts
EXAMPLE


End-of-month dating
– The payout period does
–
–
–
not begin until the last
day of the month in which the
invoice is dated.
2/10, net/30, EOM
 2% discount if the invoice
is paid within 10 days of
the last day of the month
of the invoice, or the full
(net) amount is due 30
days from the last day of
the month






A store received a shipment
of merchandise for $250.00.
The invoice is dated March 15
with terms 3/10, net/30, EOM.
When must payment be made
in order to receive the discount?
April 10
What amount do you owe if you
take the discount?
$242.50
What is the latest date for full
payment?
April 30
Cash Discounts
EXAMPLE

A store received a shipment of
merchandise for $2000.00. The
invoice is dated September 20, &
the terms are 3/10, 30X, net/60.

When must payment be made in
order to receive the discount?
October 29





What amount do you owe if you
take the discount?
$1,940.00
What is the latest date for full
payment?
November 20

Extra dating
– The buyer has
additional days in
which to pay and
still receive the cash
discount.
– 3/10, 60X, net 90

a 3% discount if the
invoice is paid within
10 days plus 60 days
from the invoice date,
or the full (net)
amount is due in 90
days