printIQ Mark-up Strategies: Pricing and Profitability Guide

Intended Audience:

This article is intended for Super Users and Implementation Staff involved in configuring and managing mark-up and pricing strategies within printIQ. It is also relevant for businesses seeking to optimise their pricing models.

Overview

Every business follows unique pricing and mark-up strategies. In the printIQ platform, backend configurations play a critical role in determining how profitability is measured for each product. This guide outlines available mark-up options, their respective formulas, and the pros and cons of each method. After reviewing the information, businesses may choose to adjust their existing settings to better suit their pricing objectives.

Common Scenarios in Implementation

During the implementation process, the following scenarios commonly arise:

1. Business with Existing Pricing: The business is satisfied with its current pricing, and printIQ will replicate these methods.
2. Business without a Pricing Strategy: The business requires recommendations and guidance from printIQ to establish an appropriate pricing model.
3. Business with Flexible Pricing: The business is content with their current operations but is open to exploring additional pricing strategies for future optimisation.

In each case, a flexible approach is adopted, often recommending a hybrid method that maintains existing practices while assessing the potential for refinements.

Mark-up Methods

1. Value Added

• Formula:
  Selling Price - (Cost of Materials + Outsourcing Costs)

• Definition:
  Value Added represents the amount remaining from the selling price after subtracting the basic costs of raw materials and any outsourced work. This calculation focuses on the internal value added to the product, excluding labour and other internal costs.

• Application:
  Value Added is useful when assessing the financial value created solely from materials and outsourced work, excluding the influence of internal labour.

• Pros and Cons:

  • Pros: Simple to calculate, highlighting the impact of material and outsourcing costs.
  • Cons: Does not account for internal labour costs, potentially underestimating the overall production effort.

• Ideal Use Case:
  Ideal when comparing products based on the raw value generated by materials and outsourced components, with minimal internal costs involved.

2. Contribution

• Formula:
  Selling Price - (Cost of Materials + Outsourcing Costs + Labour Cost)

• Definition:
  Contribution extends the Value Added model by including labour costs, reflecting the wages of individuals directly involved in production. This measure shows how much revenue remains after covering material, outsourcing, and labour costs, contributing to fixed costs and profit.

• Application:
  Contribution provides a more comprehensive view of direct production costs, helping to understand how each sale contributes towards overall business expenses.

• Pros and Cons:

  • Pros: A full picture of direct costs, emphasising the role of labour in production.
  • Cons: Does not account for indirect costs, making it less useful as a total profitability measure.

• Ideal Use Case:
  Best suited for assessing the revenue left after covering all direct production costs, including labour.

3. Profit

(Used in calculations, but not directly selectable as a method)

• Formula:
  Selling Price - Total Cost Price

• Definition:
  Profit measures the net amount remaining after all direct and indirect costs are covered. While it cannot be directly selected in the system, it underpins other key profitability metrics such as Mark-up and Margin.

• Application:
  Understanding profit is essential for calculating Mark-up and Margin, which directly influence pricing and profitability strategies.

4. Mark-up Percentage

• Formula:
  (Profit ÷ Total Cost Price) × 100

• Definition:
  Mark-up percentage represents the profit added to the cost of the product as a percentage of the cost price, showing how much higher the selling price is relative to the cost.

• Application:
  Mark-up is ideal for businesses focusing on cost-based pricing, ensuring coverage of costs while generating profit.

• Pros and Cons:

  • Pros: Simple to implement; guarantees a set profit margin above cost.
  • Cons: Does not consider market conditions or overall profitability in relation to the selling price.

• Ideal Use Case:
  When a consistent, cost-plus pricing structure is needed across products.

5. Margin Percentage

• Formula:
  (Profit ÷ Selling Price) × 100

• Definition:
  Margin percentage measures profit as a percentage of the selling price, offering a clearer understanding of how much profit is generated relative to sales.

• Application:
  Margin is useful for assessing the effectiveness of pricing strategies in competitive markets, helping to track profitability in relation to sales performance.

• Pros and Cons:

  • Pros: Provides a clear view of profitability efficiency, showing what portion of each sale contributes to profit.
  • Cons: Since it’s based on the selling price, it may not fully reflect underlying cost structures.

• Ideal Use Case:
  Ideal when the focus is on maximising profitability efficiency, particularly when market conditions are a significant factor.

Summary

• Value Added: Focuses on materials and outsourced costs, ideal when labour and indirect costs are less relevant.
• Contribution: Accounts for all direct production costs, providing a comprehensive view of each sale's contribution to fixed costs.
• Markup: Adds a set profit margin above cost, best for businesses following a cost-plus pricing strategy.
• Margin: Reflects profit as a percentage of the selling price, aiding in the assessment of profitability efficiency.

Each of these methods offers a unique approach to measuring and managing product financials, allowing businesses to tailor their pricing strategies based on specific profitability goals and operational needs.

Related Articles

• printIQ Pricing and Mark-up Strategies
  
• How to Manage the Wholesale Pricelist
  
• How to Manage the Retail Pricelist