Product Costing and Pricing Made Better with ERP

Product Costing and Pricing Made Better with ERP

Introduction

Product costing and product pricing is important for every business or company. Every business figured out the cost of the production and then they decided the pricing for the product.

Companies or manufacturers use ERP software to reduce their workload while producing the product. ERP software helps in the whole start to the end of product manufacturing.

ERP is Enterprise Resource planning. This system handles all the work of the business. Every company gets difficulty while selecting the price for the product, there is a challenge for every business to figure out the cost and price. Today’s modern ERP system does a great job to help in understanding the raw material cost, material supply charges, and various costs.

If businesses know the true cost of the product then they are able to figure out the margin of the product and their price. In the competitive market, every business carefully selects the margin of the product.

One of the reasons to use ERP software is to take control of cost. Profit margin is important while making decisions about the pricing of the product. Businesses, Companies, or Manufacturers need a profit for their business.

Enterprise Resource Planning software helps the company or manufacturer to increase their profit by controlling their cost of production and selecting the best pricing for the sales increase.

A complete set of cost data by ERP Software

Today’s ERP software can handle all the work by one software. Every business can view, modify and arrange the report of all costs of the production.

ERP software helps the business or manufacturer to provide the complete set of their cost. It can handle the data about the production. It helps the manufacturer, business to maintain their cost of raw material, material transportation charges, advertising cost, maintenance cost, etc.

In the competitive market every business, if they are a small or even leading business, they have to decide the best pricing which is profitable and cost-effective for the customer.

Through one platform businesses can handle all costs for the manufacturing process. Companies only handle one software for maintenance and manage their production cost.

ERP Software helps the manufacturer to look over the material and ingredients. If a company buys the raw material, but the stock of raw material is still remaining. Then raw material goes wasted by the company. That’s why ERP software helps to manage the raw material stock and helps the company to purchase when they really require raw material.

Recommended For You: How ERP Software Is Important For Sales Management

Updating cost and price of the product

The market is like a roller-coaster, sometimes it goes high and the next minute it goes down. Day by day every business has to update about the market price.

A competitive market is a kind of market where businesses have to provide the customer needed product price. If a business or company before deciding the product price never researches the market and decides then the sales ratio goes down because their price is distracting the customer. Businesses searched about the market then decided the price of the product.

ERP software helps to figure out the margin of the product. Sometimes the production cost is going high then it affects the pricing. In that situation, ERP systems help the company to maintain the margin of the product.

For Example:

If the price of raw material is high then product price is going high. So businesses have to update the margin.

ERP systems help to generate various reports. Reports about the customer, cost, product sales ratio, etc. This type of report helps the business to know about their product selling and profits. With the help of Enterprise Resource Planning, the software helps the business to earn profits by sales of the products.

Market ups and downs are also updated in the report which is generated by the ERP system. It makes it very easier for the business to properly update about the product cost and product price.

Product pricing strategies with ERP Software

Product pricing is very important to increase sales. So proper pricing is important to decide while businesses take the margin differently.

ERP software helps to make a margin for the profit. But the strategy for the pricing is selected by the manufacturers. Every business, company, or manufacturer selects the strategy wisely. While selecting the pricing business have to determine the product cost and remember the competitive market.

1. Cost Plus:

In Cost Plus pricing strategies every business calculates the cost of the product and then this cost is included in the profit of the company. These strategies through business determine one thing, the sales of the product will bring profits to the company.

Imagine a manufacturer purchasing the raw material and other materials for production. When they select the price for the product, then it includes the cost of the raw material and also adds the profit values.

2. Value-based Pricing:

Value-based pricing strategies depend on the customer’s needs and they believe the price is worthy for the product. Through this strategy, business or manufacturing companies decide the price based on the customer’s beliefs, how the product is worth.

For example, a manufacturer made a product and introduced it to the market then the customer decided how the product was worth it for them. Based on product worthiness for the customer, businesses set the pricing of the product.

3. Pricing based on Marketing position:

Product pricing is most important for selling your product in the competitive market. If the same product is available in the market then selling the product is going to be competitive. So businesses decide about the product pricing they have to search in the market and be aware of the competitive company or business.

Clear this topic by example, Here company A sells snacks at Rs.10 and another side Company B sells the same snacks at Rs.5 and Rs.10. If company C wants to sell the same product then they have to decide the price for their product Rs.5 or Rs.10 for standing in a competitive market.

So, there are various strategies for product pricing. So every business can select any of them to decide the price for the product. Generated reports by ERP software help the business to make decisions for the pricing.

Determine the margin of the product for profits 

Margin is very important for every business. In other words, it is profit for the business which is earned by selling the products.

ERP software stores all the costs for production. Understand this cost and then businesses have to decide the sale pricing for the product. Here is an example for determining the margin.

Total sales equal Rs.1000 (after deciding the price), cost of the manufacturing is Rs.400. So Rs. 600 is the margin, which is determined by company or business, but it is a Gross-profit. If a business or company wants to know about the net profit then they have to deduct the operating expense. Operating expenses like rent of the office, salaries of employees, insurance, advertising for the product, etc. After deducting all these expenses, businesses know their net profit.

Sometimes the gross profit of a competitive company or business is the same. In companies, there are too many employees who also work hard to increase sales. After the sale and after deducting the cost, the profit remaining is known as gross profit. From this gross profit, deduct all this operational expense and the remaining profit is a net profit for the business or company.

But the net profit for the company or business is different. Because every company handles its cost for the production and operating expenses in different ways.

ERP software not only handles the costs but also handles the operating expenses of the business which helps the company to easily calculate the net profit of the company.

Conclusion

Costing and pricing decide the profit for the company. But handling the cost and deciding about the pricing is difficult without any software. Delight ERP software is an all-in-one platform where businesses can handle all their costs for production and other expenses.

Enterprise Resource Planning systems help the company or business to manage their sales and increase their profit. In a competitive market where the company’s profit is high then this company is successful in selling their products. When companies decide the product value they also think about the net profit.

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