4.2 Calculation & Pricing

Calculation in the trading company

A trading company is characterised by the fact that it sells goods in different quantities and sales forms, such as retail, wholesale, mail order. The goods to be sold have to be obtained, possibly stored, offered in a salesroom or catalogue and finally sold in a sales talk. The goods are usually not changed by the trader.

In trade, therefore, the goods must first be purchased by the entrepreneur himself before they can be resold. A distinction is made between a purchase calculation and a sales calculation.

• The purchase price calculation determines the purchase price of the goods. The starting point is the invoice price (net) or the list price. After deducting discounts and rebates, the purchase price remains. Delivery costs may also have to be added.
• The sales calculation takes the purchase price as a starting point and adds the business costs incurred in the business as prime costs. In addition, a provisional profit share is added until the final sales price (net) is found. The sales price (net) plus turnover tax results in the sales price (gross).

 

Scheme: Overhead calculation trade
- +	Gross purchase price Invoice deductions (reseller discount, cash discount Procurement costs
=	Purchase price, cost price or net purchase price
+ + +	Business expenses Profit Sales surcharge
=	Effective or gross sales price

 

 

	Reference price calculation				Sales price calculation
	Invoice price	240,00 €			Subscription price	250,00 €
-	Discount	7,20 €		+	Action costs 25 %	62,50 €
=	Target purchase price	232,80 €		=	Cost price	312,50 €
-	Cash discount	4,66 €		+	Profit 12 %	37,50 €
=	Cash purchase price	228,14 €		=	Cash selling price	350,00 €
+	Procurement costs	21,86 €		+	Discount 2 % (in hundred)	7,14 €
	Subscription price	250,00 €		=	Target selling price	357,14 €
				+	Discount 5 % i. H.	18,80 €
				=	Final sales price (net)	375,94 €
				+	Value added tax 19 % (resp. 7 %)	71,42 €
				=	Selling price (gross)	447,36 €

 

Table 14: Relationship between reference pricing and sales pricing

 

In the sales talk, the trader often has to grant a discount or cash discount for cash payment; these are added as sales surcharges in the calculation beforehand.

• The gross profit, expressed as a percentage of the reference price, is called the calculation mark-up.
• The gross profit, expressed as a percentage of the selling price, is called the trading margin.
• The net profit (in the sense of income tax) is calculated as a percentage of the cost price and added to it. Example: Turnover at cost = 122,000 €; net profit: 15,000 €; net profit as a percentage of turnover = 15 T€:122T€ *100 = 12.2 %.
• The net profit includes the entrepreneur's salary as remuneration for his activity, the interest on the equity invested in the business and the actual entrepreneurial profit, which also serves to cover the general, incalculable entrepreneurial risk.
• The calculation can be determined in a simplified way with the help of a calculation factor, which can be formed when some experience is available.

Calculation in the manufacturing plant

A manufacturing company is characterised by the fact that it produces goods and products itself or processes them further. The costing in a company that produces goods must first buy them as preliminary products, then process them and finally sell them. This also applies to many craft enterprises.

 

Example: Quotation calculation in the manufacturing industry in euros

The offer at which a certain product is to be sold to a customer is to be determined:

Designation	Values
Product designation		Screws
Quantity required		10.000
Machine designation		CNC machine
Machine hour charge rate		50,00 €
Max. Production quantity per hour (in pieces)		1000
Proportionate machine costs per unit		0,05 €
+ material costs per piece		0,10 €
+ External power per piece		0,10 €
= Cost price per piece		0,25 €
+ Profit per unit	50%	0,125€
= Selling price net piece		0,375 €
* Supply quantity to be produced		10.000
Net bid amount	%	3.750 €
* VAT in %	19%	712,50 €
Gross bid amount		4.462,50 €

Table 15: Offer calculation

 

A trader needs 10,000 screws. They can be produced with a CNC machine. The production hour of the machine should cost 50 €. The machine can produce 1,000 screws per hour. The proportional machine cost per screw is 50 €:1000= 0,05 €. The material costs amount to 0.10 €. External services, such as galvanising, amount to another 0.10 €. The cost price is therefore 0.25 € per piece. The company wants to realise a profit of 50 %. The sales price is therefore 0.375 € per piece. With 10,000 pieces, this results in a gross offer amount of 4,350 €.

Calculation of services

The calculation of a service is determined by the type of service provision and the know-how required for this. The selling price is based on the individual hourly rates of the person offering the service. 

 

Example: Quotation calculation for services in euros

The service offer can be calculated on an hourly basis. A total service is assumed for which a definable number of hours can be charged. External services (from third parties), for example, are required to create the service and must be included accordingly.

 

Costing levels		Amount
Wage costs per chargeable working hour		20,47 €
+ variable overheads		4,47 €
+ fixed overheads per chargeable working hour		12,85 €
= Hourly rate (cost-covering)	100 %	37,79 €
+ Profit share per working hour	15 %	5,66 €
= Hourly billing rate		43,45 €
* Number of working hours required	10
= Offer sum for own services		434,50€
+ External services	100,00€	100,00€
+ external service surcharge	10%	10,00€
= Offer sum (net)	100%	544,50€
+ VAT in %	19 %	103,45€
= bid amount (gross)	116%	647,95€

Table 16: Costing levels

 

Fixed price calculation for services in euros

The fixed price calculation is based on the fact that a fixed hourly rate is determined as a starting point. The order volume is to be estimated in work units or time units.

 

Costing levels	Amount
Labour costs per hour worked	50%	25,00 €
+ variable overheads	20%	5,00 €
+ fixed overheads per chargeable working hour	30%	7,50 €
= Hourly rate (cost-covering)	100%	37,50 €
+ Profit share per working hour	10%	3,75 €
= Hourly billing rate according to operating data		41,25 €
Shortage or surplus per working hour		8,75 €
= Hourly rate offered		50,00 €
* Number of working hours required	15
= Offer sum for own services		750,00 €
+ External services		1.400,00 €
+ Third-party surcharge in %	0%	-   €
= Offer sum (net)	100%	750,00 €
+ VAT in %	19%	142,50 €
= total amount offered (gross) specified	116%	892,50 €

Table 17: Fixed price calculation

 

Calculation of freelance activities

Cost calculation in the liberal professions is based on the type of business. Only when the type of service is defined and the type of income, a calculation scheme for the calculation of the respective services is possible. The activity of a freelance commercial agent is completely different from that of a freelance lawyer, doctor or psychological practitioner. Neither in the case of a commercial agent are the revenues defined by sales figures and corresponding commissions, whereas the revenues of lawyers or doctors are defined by fee schedules - partly on a statutory basis. If, for example, flat rates per case are paid for medical services, a price calculation of an individual service is hardly possible. Instead, the doctor must try to adjust the service to the price. This also happens when services are budgeted. In any case, a calculation must refer to the overall performance of the enterprise and the total costs.

If a freelance management consultant sells his consulting services on his own, he has to take into account not only material and office costs, but above all the "time spent". It makes a big difference whether a consultancy hour costs € 25, € 50 or even € 200.

Model calculation of a consultant, trainer, lecturer

Consultants, trainers, course instructors, lecturers are usually paid on an hourly basis. In the case of a consultancy assignment or a seminar, only a certain fee can be achieved:

 

Table 18: Calculation of freelance work

 

Possible income: The income range for the same working hours is therefore very different.

Necessary working time: From the point of view of the self-employed entrepreneur, the question is how great the effort must be in order to achieve a certain income. The basis for this is at least the entrepreneur's wage - after deduction of all costs.

 

 

 

 

Table 19: Calculation working time

To achieve an income of 1,500 €, 100 working hours must be spent at an hourly fee of 15 €. With a fee of 200 €/hour, on the other hand, only 7.5 hours.

The valuation of the hourly fee must be based on the market price at which the freelancer can sell his service. The hourly fee must cover the costs in total.

As a freelancer, the fee (gross) is taxable in full within the scope of income tax after deduction of business and deductible costs. Pension expenses and the costs of running a business should also be paid from the gross; the net income is therefore correspondingly lower.

The calculation for freelancers depends on the type of business. Another possibility is the sale of advisory services at a fixed cost rate. The determination of service packages or of contracts for work, where not the individual hour or day is sold, but a service product at a calculated price, is another way of calculating sales prices.