AboutLeo Lingham Expertise I can answer questions on marketing, marketing planning,
product management, advertising, sales promotions, sales planning,
merchandising, direct marketing, and sales management.
Experience 18 YEARS WORKING MANAGEMENT EXPERIENCE IN BUSINESS PLANNING,
STRATEGIC PLANNING, MARKETING, SALES MANAGEMENT, AND ORGANIZATION DEVELOPMENT.
PLUS
24 YEARS OF MANAGEMENT CONSULTING IN STRATEGIC PLANNING,
BUSINESS PLANNING, PRODUCT MANAGEMENT, MANAGEMENT TRAINING,
AND BUSINESS COACHING.
Expert: Leo Lingham Date: 5/26/2008 Subject: Pricing
Question Hi Leo,
could you please explain to me how and why pricing a service would differ from the pricing of a physical product? I have my opinion on it but i'd like a second persons perspective.
Thanks a lot Carey
Answer CAREY,
HERE IS SOME USEFUL MATERIAL.
REGARDS
LEO LINGHAM
===============================
PRODUCT PRICING
DIRECT TO END USER PRICING.
1.DIRECT TARGET COST [ labor/ material]--------A
2.OVERHEADS ----- ------------------------------------------B
3.COMPANY UNIT TARGET COST-------------------A+B
4.ALLOCATION OF NON-RECURRING
DEVELOPMENT COST----------------------------------C
5.COMPANY UNIT SELLING/GENERAL
ADMINISTRATION COST------------------------------D
6.COMPANY ALLOCATION MARGIN-----------------E
7.WARRANTY COST----------------------------------------F
8.PROFIT MARGIN FOR COMPANY------------------G
9.COMPANY SELLING PRICE --A+B+C+D+E+F+G==H
10.SHIPPING /logistics/to warehouse----------------------K
11.DISTRIBUTION COST --------------------------------------L
12.SELLING PRICE TO END USER CUSTOMER----------------H+K+L==M
====================================================
SERVICE PRICING
DETAIL DESCRIPTION OF COST ELEMENTS
TOTAL REFER-
1. DIRECT MATERIAL EST COST
A. PURCHASED PARTS
B. SUBCONTRACTED ITEMS
C. OTHER --
(1) RAW MATERIAL
(2) STANDARD COMMERCIAL ITEMS
-------------------------------------------------------
TOTAL DIRECT MATERIAL
2. MATERIAL OVERHEAD (Rate % X $ base =)
ESTIMATED RATE/
---------------------------------------------------
3. DIRECT LABOR HOURS HOUR EST COST ($)
TOTAL DIRECT LABOR
---------------------------------------------------
4. LABOR OVERHEAD O.H. RATE X BASE = EST COST ($)
TOTAL LABOR OVERHEAD
-----------------------------------------------------------------
5. OTHER DIRECT COSTS EST COST ($)
A. SPECIAL TOOLING/EQUIPMENT
TOTAL SPECIAL TOOLING\EQUIPMENT
B. TRAVEL EST COST ($)
(1) TRANSPORTATION
(2) PER DIEM OR SUBSISTENCE
TOTAL TRAVEL
C. INDIVIDUAL CONSULTANT SERVICES EST COST ($)
TOTAL INDIVIDUAL CONSULTANT SERVICES
D. OTHER EST COST ($)
TOTAL OTHER
SUBTOTAL DIRECT COST AND OVERHEAD
--------------------------------------------------
6. GENERAL AND ADMINISTRATIVE (G&A) EXPENSE (RATE % x $ BASE (I.E., COST ELEMENT NOS. ) =
7. ROYALTIES
8 SUBTOTAL ESTIMATED COST
9. CONTRACT FACILITIES CAPITAL AND COST OF MONEY
10 SUBTOTAL ESTIMATED COST
11. PROFIT
12 TOTAL ESTIMATED BILLING
==============================================
PRODUCT PRICING
-labor cost is low proportion.
-material cost is high.
-overheads are very high
-pricing varies with the product positioning.
-pricing is directly proportional to tangible benefits.
======================================
SERVICE PRICING.
-labor cost level is very high proportion.
-material cost is low.
-overheads are high.
-pricing varies with the service provider quality.
-pricing varies with
*people [ ability,competent, right attitude ]
*physical evidence
*process
*service delivery
*service quality
*customer satisfaction/ relation management
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