Varying Profit Margins

Varying Profit Margins

 

A seller must recover all costs from his or her total sales to make profit. However, each product in the line does not have to make a profit, and not all accounts have to yield the same profit margin. Bearing these thoughts in mind, the principal cost/competition implications of pricing can be summarized as follows: Sound piecing policy dictates that sellers, in accordance with their interpretation of the prevailing competitive forces, quote prices that are high enough to include all variable costs and make the maximum possible contribution toward fixed costs and profit.

 

Similarly, sound pricing policy dictates that for any specific purchase, supply professionals should use their knowledge of products, markets, costs, and competitive conditions to estimate the price range in which sellers reasonably can be expected to do business. Finally, with this information, knowledge of the value of the buyer’s ongoing business to a seller, and an appreciation of the value of this specific order, the supply professional applies all relevant purchasing principles and techniques to purchase at prices as close as possible to the bottom of the estimated price range.