Expanding into international markets is a crucial step for SMEs, but many entrepreneurs often face the problem of making sales but leaving no profit. The main reason isn't the product itself, but the pricing strategy, particularly the complex and often hidden costs of international shipping. This article from SME Shipping will guide you on how to systematically set international selling prices to ensure your pricing covers actual costs, maintains market competitiveness, and prevents unforeseen losses due to shipping expenses.

Why is pricing different for international sales compared to domestic sales?

For domestic sales, we may be familiar with simple formulas or recipes.Cost of goods + Profit = Selling price

However, when it comes to cross-border sales, this formula is no longer sufficient because other costs are involved, such as:

• International shipping costs
• Product insurance fee
• Import duties and customs procedures
• Document fees, logistics management fees.
• Exchange rate risk

If you set prices based solely on product cost, there's a very high chance that transportation costs will unknowingly eat up all your profits.

Transportation costs are an expense that cannot be overlooked.

For international sales, shipping costs are not just for shipping packages, but include various expenses such as:

• Transportation costs from the factory or warehouse to the port.
• Shipping or air freight charges.
• Destination service fees (clearance, customs, delivery to customer)
• Charges according to the terms of delivery.

If you don't consider these costs from the start, the price you set on paper might seem like a sale, but in reality, your accounting figures might show you're unknowingly losing money on every order. So where should you begin pricing for international sales? 

Where should you start when setting prices for international sales?

1. Start by seeing the "actual costs" at every step.

Before thinking about profit, the first thing that needs to be clear is... The total cost you actually have to pay. It's not just the cost of goods alone, but also includes...

• Cost of production or price of goods (COGS)
• International shipping costs at all stages.
• Product insurance fee
• Taxes and fees involved.
• Labor costs, documentation costs, and logistics management costs.
• Payment processing fees and exchange rate fluctuations.

When you see these numbers clearly combined, you'll immediately know where the minimum selling price should be to avoid selling at a loss.

2. Choose appropriate Incoterms, not just those requested by the client.

Incoterms are international terms used to define who is responsible for the costs at each stage of transportation, such as:

• FOB (Seller handles delivery to the port of origin).
• CIF (Cash on Delivery) – Seller handles delivery to the destination port, including insurance.
• DDP (Drop-and-Delivery), where the seller handles everything until the product reaches the customer.

The more responsibility you take on, the higher your costs become, and these costs are inevitably reflected in your selling price. Therefore, choosing the right Incoterms for your business model will help you better control profitability from the start.

 3. Don't set prices without considering the end market.

A good price isn't just about covering costs, but also about choosing the right price for the market you're targeting. In some countries, customers prioritize quality, brand, and reliability, while in others, price is the primary competition. Setting prices too high might result in low sales, while setting them too low could lead to price wars and a loss of profit in the long run.

4. Develop a clear pricing strategy before entering the market.

Effective pricing should answer the question: what do you want from this market?

• Looking to target the initial market segment.
• I want to position the product as premium.
• We want to set prices close to those of our competitors.
• Or focus on the value the customer receives rather than the price.

Regardless of which path is chosen, the important thing is that every figure must have a rationale behind it, not just guesswork in pricing.

What happens if you set the price incorrectly?

Setting prices for international sales without careful consideration can lead to problems that many SMEs have encountered, such as:

• The profit we should have made is lost to transportation costs.
• Sales look good, but we're short on cash flow.
• We are unable to expand our market or accept more orders.
• We had to revise the prices, which damaged our credibility with customers. 

When setting prices for your products, whether domestically or internationally, always remember that a good price is the foundation of sustainable sales. And pricing international products isn't overly complicated if you start from the beginning.

• Understand the true costs.
• Consider shipping costs from all angles.
• Choose suitable delivery terms and set prices that are in line with the market.

For SMEs, professional pricing from the start will help you maintain sales, preserve profits, and grow steadily in the global market.