Product Costs and Pricing Engine
This post describes some basics of how the different ‘cost’ fields in the product entity affect the pricing calculations of the products. The definitions of current cost and standard cost may be changed for your own scenarios. But the description below should help understand how these fields affect pricing.
List Price: This is the ‘listed’ price. You may still choose to have markup over it – which can be defined in the pricing method.
Current Cost: This is the current cost of an item, which is usually updated each time a new shipment is received.
Standard Cost: This is the standard cost of an item, which is updated periodically, but not necessarily each time a new shipment is received. It is not equal to the actual cost of the item.
Here’s how each of the costs would affect the pricing. Let’s say your product has the following prices:
List price – 100$
Current Cost – 30$
Standard cost – 20$
No discount list.
When adding this product to the price list item, you’ll have 6 options to choose from. Let’s take an example for each.
1 – Currency Amount: The price of product is determined by a flat amount. This you can change and nothing from the fields above will affect this.
2 – % of List Price: The price of the product is determined as a percentage of the list price. For example, if you say 200% in the ‘percentage’ area, when this product is added to a quote/order/invoice, the price per unit will be $200
3 – % Markup – Current Cost: Each time you receive a shipment of an item, the price being charged changes based on the item’s current cost when it was received. For example if you have 50% markup, when the product is added to a quote, the price per unit will be $45 (150% of $30).
4 – % Margin – Current Cost: The price of the product is determined based on the percentage profit that you want to receive. Current cost + [(current cost x percentage)/ (100% -percentage)]. For example, if you have a 50% margin, when the product is added to a Q/O/I, the price per unit will be $60 (30+ [(30*50)/50]).
5 – % Markup – Standard Cost: The price of an item changes only when the standard cost is updated (not like current cost which is the cost of each item in the last shipment). For
example, if you have a 50% markup, the price per unit will be $30.
6 – % Margin – Standard Cost: In this method also the price of an item changes only when the standard cost is updated. Standard cost + [(standard cost x percentage)/ (100% -percentage)]. For example, if you have 50% margin on standard cost, when the product is added to Q/O/I the price per unit will be 40$ (20+[(20*50)/(50)]).