Building an Export Pricing Strategy: A Step-by-Step Guide for Exporters

If you have a small or medium-sized enterprise (SME), deciding what to charge international buyers can be one of the biggest challenges of a new market. You'll need an export pricing strategy that accounts for more than the cost of making a product, because freight, tariffs, insurance, currency fluctuations, distribution costs, and market expectations all affect whether your export sale is profitable.

A price that's too high may drive potential buyers to your competitors, while a price that's too low can leave you fulfilling orders at little to no profit. The key is to understand your true costs first, research the target market, and then choose a pricing approach that supports your business goals. Here's what to know.

What Is Export Pricing?

Export pricing is the process of setting a price for a product sold to a buyer in a foreign market. Unlike domestic pricing, it requires you to account for the additional costs, risks, and competitive conditions involved in international sales.

For example, your product's domestic price may cover production, packaging, overhead, and a desired profit margin, while your export price may also need to account for export packaging, international transportation, insurance, customs-related costs, tariffs, currency risk, and the responsibilities assigned under the chosen Incoterm. The selling price you use in an export market may be very different from the price that works in your domestic market.

Export pricing also has to reflect the target market, because buyers in another country may have different expectations about product features, quality, certifications, delivery times, and acceptable price points for your product or service.

Export Costing and Pricing: Calculate Your True Costs First

Export costing and pricing are related, but they aren't the same. Cost is what you'll spend to produce and deliver the product, and price is what your buyer pays. The difference between the two, after all expenses, determines your margin.

One of the most common mistakes SMEs make is quoting an international buyer before calculating the full cost of fulfilling the order, and an attractive factory price can quickly become unprofitable once freight, insurance, tariffs, and other expenses are included.

Production and Product-Related Costs

Start with the costs associated with making and preparing the product:

• Raw materials and components
• Direct labor
• Manufacturing overhead
• Export-specific packaging
• Destination-market labeling
• Required certifications
• Product modifications
• Quality-control requirements
• Other market-specific preparation costs

Some costs that seem insignificant in domestic sales can add up fast when exporting, because a destination market may require different labels, packaging materials, certifications, or product specs. You should calculate these expenses per unit whenever possible, while also accounting for fixed costs that do not change with each individual order.

Logistics, Tariffs, and Currency Factors

You'll also need to account for costs associated with moving the product from your facility to the buyer, such as freight, insurance, handling, customs-related charges, and destination-country tariffs.

Financing can also affect the costs of an export transaction. For example, longer payment terms can increase the amount of working capital you'll need between production and payment. If you're looking for financing options, exploring bank options can be the place to start.

Currency risk is particularly important. If you quote a buyer in a foreign currency but receive payment weeks or months later, exchange-rate movements can change the value of the sale in your home currency. An Incoterms explainer can help you understand how different trade terms allocate costs and responsibilities, and using an Incoterms price calculator can also help simplify the process.

Common Export Pricing Strategies

There's no single export pricing method that works for every company, and several options are available.

Cost-Plus Pricing

Cost-plus pricing is one of the simplest approaches for a new exporter, where you calculate your export cost and add a predetermined margin. The major advantage is simplicity, but the main limitation is that cost-plus pricing doesn't necessarily reflect what buyers in your target market are willing to pay.

Competitive and Market-Based Pricing

Competitive pricing starts with the market rather than your company's internal costs. You'll research what comparable products cost in your destination market and set a price that fits the competitive landscape. To do that, consider distributor markups, importer costs, and local retail prices to understand what the final buyer may actually pay.

When you identify and research competitors, you'll have more information to work with, because competitive pricing works particularly well when several established companies sell similar products.

Penetration and Value-Based Pricing

Penetration pricing takes a different approach, where you might enter a new market with a relatively low price to attract customers and build market share quickly, but your tradeoff is lower initial margins.

Value-based pricing focuses on what your product is worth to the customer, so instead of pricing primarily according to production cost or competitor prices, you're considering the perceived benefits of your product.

You don't necessarily have to choose one strategy exclusively, since you might use penetration pricing for a new market and value-based pricing for a premium or flagship product line. In some situations, exporters also consider marginal cost pricing, especially when deciding whether an additional international order can be profitable after core expenses are already covered.

How to Build Your Export Pricing Strategy Step by Step

Once your costs and potential strategies are clear, here's how to turn them into a repeatable process.

1. Research the Target Market and Buyer

Start by understanding who's buying your product, what alternatives they have, and what they're willing to pay. Also, research competitors, distributors, retailers, and local market conditions.

2. Calculate Your Total Landed Cost

Build a complete cost picture before setting your price, including production, packaging, certifications, freight, insurance, tariffs, customs-related costs, and other expenses associated with your chosen delivery terms. It's essential not to rely on your domestic price as a shortcut.

3. Set Your Pricing Objective

Determine what you want the price to accomplish and what you're prioritizing, including market share, profit margin, fast market entry, premium brand positioning, or long-term distributor relationships. If you're trying to establish yourself in a new market, you may be looking at a different initial margin than an established exporter.

4. Select Your Pricing Strategy

Use the information you've gathered to choose an approach or combination of approaches. Cost-plus may give you a useful baseline, while competitive research tells you whether your price fits the market. Value-based considerations can also help determine whether your product justifies a premium.

5. Set the Export Price

Establish your price for the specific transaction, including the currency, quantity, delivery terms, and payment terms. Make sure everyone involved understands what the quoted price includes and which costs are your buyer's responsibility.

6. Test the Price Against Real Demand

Review live buyer opportunities through purchasing announcements to see the types of products and purchasing requirements appearing in the market, and review pricing regularly, including freight rates, tariffs, exchange rates, and other costs.

Your pricing strategy should be part of a larger export plan, rather than an isolated calculation, and for additional market insight, you can explore our local partners directory and course catalog for opportunities to develop your export knowledge and skills.

Export Pricing Mistakes That Cost SMEs Money

A few common mistakes can quickly make your international sale unprofitable, but they're mistakes you can largely avoid. These include:

• Quoting before calculating the full landed cost: Don't send a buyer a price based only on production cost.
• Copying the domestic price: An international buyer isn't purchasing under the same conditions as a domestic customer.
• Ignoring your buyer's total cost: Understanding the basics of import documentation can help you better understand what your buyers experience on their end.
• Focusing on competitor prices without checking your own margin: A competitor's price could reflect a different cost structure, shipping arrangement, production, volume or market strategy.
• Failing to revisit the price: Export prices shouldn't be permanent, because changes in freight, tariffs, exchange rates, production costs, and market demand can all affect them.

Ready to Price Your Products for Buyers Across Latin America and the Caribbean?

Before sending your next international quote, use our free Incoterms price calculator to model your costs under different delivery terms. You can also explore our costing and pricing techniques for SMEs training for hands-on help developing your pricing sheet.

Ready to connect with potential buyers and partners? Sign up for free on ConnectAmericas today and let us help you start building commercial relationships across Latin America and the Caribbean with ease.

FAQ

What is export pricing?

Export pricing is the process of setting the price for a product sold to a buyer in another country, and accounts for production costs as well as export-specific expenses such as freight, insurance, tariffs, currency risk, and market conditions.

How is export pricing different from domestic pricing?

Export pricing involves additional costs and risks that don't apply to domestic sales, including international transportation, tariffs, customs requirements, currency fluctuations, and destination-market requirements.

What costs should be included in an export costing sheet?

Production costs, packaging, labeling, certifications, product modifications, freight, insurance, tariffs, customs-related expenses, and costs associated with fulfilling the order under the delivery terms.

What is the best pricing strategy for a new exporter?

Cost-plus pricing can provide a useful starting point, while competitive, penetration or value-based pricing may be appropriate depending on your target market, competitors, product differentiation, and business objectives.

How do Incoterms affect export pricing?

Incoterms determine who's responsible for specific costs and responsibilities during transportation and delivery. Choosing FOB, CIF, or DDP can change the costs you need to include in your quoted price.

How often should I review my export pricing strategy?

Review your pricing whenever significant factors change, including freight rates, tariffs, exchange rates, production costs, or market conditions. Regular reviews can help prevent your margins from shrinking over time.

Can currency fluctuations affect my export profit margin?

Yes, if the price is quoted in a foreign currency and the exchange rate changes before payment, the value of the sale in your home currency can change. Longer payment periods can increase this risk.

What is the difference between cost-plus and value-based pricing?

Cost-plus pricing starts with your costs and adds a desired margin, while value-based pricing focuses on the benefits and value the product provides to the buyer and what the market may be willing to pay for those benefits.