For export and
international sales managers,
setting the right price for
your product is one of the
most important decisions in
the entire export process.
Proper preparation and use of
a Proforma invoice can help
you avoid pricing too high or
too low.
Since a proforma invoice
is, in essence, your price
quotation to a potential
buyer, this document allows
you, the seller, to take the
initiative in proposing the
sales and payment terms. Even
more important, a
well-constructed proforma
invoice will compel you and
your export staff to think
through each transaction
step-by-step before taking an
order or signing a
contract-including accounting
for all possible costs for
which you, the exporter, are
liable.
Getting Your Sale Off on
the Right Foot
After initial market
research, most exporters make
the mistake of simply adding
the domestic price for their
product to freight, packing,
and insurance for a CIF (Cost,
Insurance, and Freight)
quotation. This can result in
setting too low a price, since
it fails to take into account
unavoidable risks, unforeseen
costs, and human error.
In addition to the
production cost of your
product and the profit margin
your firm is aiming for,
export professionals should
factor in the following
potential expenses when
setting an export price:
Overseas phone, fax,
telex, and postage
Credit checks and market
research
International promotion,
travel, advertising, and
participation in trade
shows-including
translation costs
Export packing and
labeling requirements, if
not already included in
your quotation
Hidden Costs That Can Kill
Your Profit
Be sure to anticipate costs
that may surface later in the
course of an export
transaction-after you've
agreed to a price. Depending
on the Incoterm you are
quoting, the nature of your
product, and the country
you're exporting to, such
unforeseen costs may include:
Obtaining an export
license
Warehousing and other
storage or transportation
expenses, like
consolidation and
container rental
Main carriage - air,
ocean, or overland
Pre-carriage, including
port delivery and loading
Any foreign consular,
inspection, legalization,
or certification fees that
may apply
Sales commissions
Cargo insurance
Fees for freight
forwarding
Bank fees and expenses.
Quotations should
specifically state
"All charges are for
the account of the
purchaser."
In addition, if you are
quoting any of the five
"D" Incoterms, other
expenses may include
on-carriage costs, customs
broker fees and import duties,
unloading and storage, and
value-added tax.
From the above, it's easy
to see that a proforma invoice
must be prepared with the same
care you would use in actually
invoicing a buyer. Send the
proforma invoice to your
overseas customer as soon as
you reach a clear agreement
concerning product, quantity,
price and terms.
