Cost calculation, marketing material and order handling Cambodia - - PowerPoint PPT Presentation

Training workshop on market development and marketing,

Cambodia Export Diversification and Expansion

Training workshop on market development and marketing, product design and development

Cost calculation, marketing material and order handling Program (CEDEP I) Training workshop

By Alfons Eiligmann Date: Oct. 21, 2013

Overview

Contents

Cost calculation Price list and other sales material Order handling

In Business-to-Business, selling is a stepwise process

Prepare Promote Sell Deliver After Prepare Promote Sell Deliver After sales Choose high- potential export products Plan Prepare marketing material Contact buyers Meet Submit quotation Get order confirmation Produce Ship Check customer satisfaction Build long- term relationship production Calculate prices personally

Products and Production

• Which products can you easily produce in larger quantity?
• Which products can you produce for a particularly reasonable price?

Select high potential products and calculate production capacity

• Which products can you produce for a particularly reasonable price?
• Which product designs are most appreciated by international customers?

Assess Production Capacity for Selected Products

• No. of reliable

and capable craftsmen Quantity per craftsman/day Quantity per craftsman/month Total quantity/month

(quantity per craftsman x no. of craftsman x no. of craftsmen) Product 1 Product 2 Product 3 Product 4 Product 5

Price calculation

Cost-based pricing – vs – Market-based pricing

• Calculate product prices based on

production costs

What are the two generic possibilities to

production costs

• Calculate product prices based on market

prices

possibilities to calculate prices? What are typical mark-up factors

Market-based pricing

• Depends on quantity, company, product,
• no. of intermediary traders
• As a rule of thumb, you may use a factor

in international handicrafts trade?

• As a rule of thumb, you may use a factor
• f 1:5 for handicrafts between fob-price

and retail price

• Check prices online or when visiting

shops abroad and compare retail catalogues.

Example market-based pricing

Example of Calculation: Table Runner FOB € 10.00

Wholesaler

FOB price manufacturer € 10.00 FOB price manufacturer Freight cost/Financing/bank fees Cost price 80 % mark-up on the cost price Wholesaler‘s selling price € 10.00 € 2.30 € 12.30 € 9.84 € 22.14

A) Wholesaler‘s selling price to retailer round up € 23.00 Retailer

100 % mark-up for cost covering and approx. 10 % profit € 23.00 Total VAT 19 % Consumer price € 46.00 € 8.74 € 54.74

B) Retailer‘s selling price to consumer round up € 54.50

Cost-based calculation handicrafts

Calculate Production Costs

Material Cost/Unit Quantity needed/piece Cost/piece

Raw material 1 Raw material 2 Other small material Other small material Other small material

A) Total material cost Labour Cost/hour Hours needed Cost/piece

Dyeing Loom set up Weaving Sewing Packing

B) Total labour cost C) Total direct cost per piece (A+B) Indirect cost

+ x% mark-up for indirect cost + x% mark-up for rejected products/raw material price fluctuation/wastage + x% mark-up for taxes + x% mark-up for expected profit margin

D) Product price

Calculation of indirect costs

Calculate Mark-up for Indirect Costs

Indirect costs per year Office and production facilities rental

• Labour costs office/administration/permanent employees

Office running costs/communication Marketing expenses Repair works Transport/Car Insurance Other costs

Total indirect cost/year Indirect costs per piece Indirect costs per piece

Low production quantity (… pieces/year) = Indirect costs/piece Medium production quantity (… pieces/year) = Indirect costs/piece Large production quantity (… pieces/year) = Indirect costs/piece

Use the cost calculation for increasing your competitiveness

What can you

Example scarves:

1. Raw material cost (silk) are important. New

What can you do if your products are too expensive?

1. Raw material cost (silk) are important. New purchasing source or purchasing of larger quantity can reduce raw material costs 2. Sizes can be reviewed to reduce labour costs (e.g. scarves of 0.35 x 1.7 m instead of 0.4 x 1.8) 3. Combination of different kinds of raw material can mean different costs (fine silk/raw silk) 4. Some scarves are complicated to weave (e.g. IKAT) and mean high labour costs. Concentration

• n scarves which can be produced quickly

increases competitiveness. 5. Uni-colour scarves can be offered as a basic cheap item.

Overview

Contents

Cost calculation Price list and other sales material Order handling

Preparation of a wholesale price list

Example of a wholesale price list

Pictures Collection Name Product Code Dimensions Wholesale price – Ex works Transport cost per piece, express courier door-to-door 200 < 500 Dimensions Weight < 200 pcs 200 < 500 pcs > 500 pcs 200 pcs 500 pcs 1000 pcs

• Usually, an exporter indicates an FOB price.
• Some buyers only expect an FOB price and are used to ask their freight

forwarder for handling transport issues. forwarder for handling transport issues.

• Other buyers are less used to import goods from a country like Cambodia and

prefer an offer including transport cost.

• In case of export promotion activities in Cambodia in the past, the transport costs

calculation was key for getting important buyers.

INCOTERMS 2010

What are the most important INCOTERMS

Code Meaning Indication

EXW EX Works: Price at factory gate Location of the production site

INCOTERMS used for handicraft exports?

production site FCA Free Carrier: Including transport to the first freight forwarder (Carrier) named by the client and preparation of all customs clearance documents. The seller is responsible for customs clearance and related costs Location from which goods will be shipped Free On Board: Including transport to the harbour and preparation of all customs clearance documents. Harbour from which FOB customs clearance documents. The seller is responsible for customs clearance and related costs Normally only for sea freight Harbour from which goods will be shipped CIF Cost Insurance Freight: Under this condition, all costs for overseas transport and insurance until the agreed destination are included The seller is responsible for transport and insurance costs Location to which goods will be shipped

INCOTERMS 2010

Incoterms Load to truck Export- duty payment Transport to exporter‘s port Unload from truck at the

• rigin‘s

port Landing charges at

• rigin‘s

port Transport to importer‘s port Landing charges at importer‘s port Unload

• nto trucks

from the importer‘s port Transport to destination Entry – customs clearance Entry – duties and taxes Insurance EXW No No No No No No No No No No No No FCA Yes Yes No No No No No No No No No No FAS Yes Yes Yes Yes No No No No No No No No FOB Yes Yes Yes Yes Yes No No No No No No No CFR Yes Yes Yes Yes Yes Yes No No No No No No CIF Yes Yes Yes Yes Yes Yes No No No No No Yes CPT Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No CIP Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes DAT Yes Yes Yes Yes Yes Yes Yes No No No No Yes DAP Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No

Source: Wikipedia

Calculation of parcel transportation costs

Parcel service transport costs are indicated separately and calculated on the following basis:

• For EMS delivery:

− Weight per item plus 10-20 % security margin multiplied by the number of items Plus weight of packaging ( .. kg carton for ... pieces, ... kg carton for ... pieces) − Plus weight of packaging ( .. kg carton for ... pieces, ... kg carton for ... pieces) − Application of the next kg category parcel price available in the EMS price list − Division of the parcel costs by the number of items.

• For DHL delivery:

− Calculation like for EMS – but based on the latest DHL price list − In addition to freight costs indicated in the DHL price list: 17 % for fuel surcharge and 2%VAT, add in total 19 % − Plus insurance for the parcel (1.5% of the parcel value or minimum 10$).

• For TNT delivery:
• For TNT delivery:

− Calculation like EMS − Plus insurance for the parcel (1.5% of the parcel value or minimum 10$). − TNT prices include already fuel surcharge and VAT.

Note: Examples and conditions in 2008. Conditions need to be reviewed and up-dated. Use latest price lists and conditions for your calculation.

Calculation of Airfreight Transport Costs

Example Airfreight Costs Calculation

Weight per piece 0.2 kg

• No. of pieces in one box

100 Weight of products in one box 20 kg Weight of the box/packaging material itself 3 kg Total weight 1 box/100 pieces 23 kg Airfreight rate/kg 5 $ Airfreight costs for delivery of 1,000 pieces 1.150 $ Transport insurance costs for delivery of 1,000 pieces 100 $ Customs declaration and/or other costs charged 250 $ Total shipment costs for 1,000 pieces 1.500 $ Shipment costs per piece 1.5 $

Comments on parcel services in Cambodia

• DHL and TNT prices are very similar. There are

sometimes differences with regard to their flexibility to accept larger shipments (for instance, whether they require that the goods are accompanied by a C/O).

• International customers placing larger orders should be

What are your experiences

• International customers placing larger orders should be

served primarily by DHL or TNT in order to have transport insurance. EMS delivery or else should only be taken upon specific request of the customer.

• There are maximum parcel weights (30 kg to the EU, US

as well as most other countries).

• In case of DHL or TNT shipment, prices can also be

indicated as CIF price (Cost, Insurance, and Freight): Under this condition, the overseas transport and

experiences with parcel services in Cambodia?

Under this condition, the overseas transport and insurance costs are included.

• You may split one larger order in 2-3 parcel shipments.
• L/C (Letter of credit) payment is not possible, when

using parcel services for shipment.

• Note: Examples and conditions in 2008.

Conditions need to be reviewed and up- dated.

CATALOGUE

CATALOGUE

TECHNICAL SHEET

Topic Information

The Story

• Year of foundation

What does a client want to know

• Owner
• Business principles

Company details

• Number of employees
• Producer network
• Company organisation

Production details

• Production capacity
• Production system
• Product specifications

to know about you?

• Product specifications

Order details

• Minimum order
• Packaging
• Payment terms

Overview

Contents

Cost calculation Price list and other sales material Order handling

From pro-forma invoice to payment

• Step 1: Send a pro-forma invoice/quotation
• Step 2: Ask for agreement
• Step 3: Ask for down-payment

How do you conclude an export

• Step 4: Produce
• Step 5: Turn the pro-forma invoice into final invoice

A simple pro forma invoice may follow the following

• template. Add a product list and, in case, transport

details. In case applicable, add the text and the additional pages for low value assignments without C/O. The shipment itself is accompanied by an original

export contract?

The shipment itself is accompanied by an original invoice with original stamp and signature. Change the title from pro-forma-invoice to invoice and indicate, in case, that the payment has already been received or to what extent a final payment is still to be made.

Example of a simple format of a pro-forma invoice

Example of a product list

Remarks pro-forma invoice

• A pro-forma invoice essentially is a “quotation” in form of an invoice

that sets the road to further negotiations.

• Some exporters prefer to write an offer, others prefer to write a pro-
• Some exporters prefer to write an offer, others prefer to write a pro-

forma invoice.

• A pro-forma invoice has the advantage that it is already closer to the

final invoice and, therefore, reduces misunderstandings.

• It needs to be sufficiently accurate and realistic.
• Develop a template so that you just have to fill in and adapt where

needed needed

Invoice requirements for L/C payment

Content needed for an invoice for

• The seller: Company name and address
• The buyer: Company name and address
• The kind of product which is bought
• The net weight

invoice for L/C

• The net weight
• The volume in m³
• Invoice Number and Date
• Total number of products
• Total number of boxes
• Price and Currency
• Terms of payment: e.g. FOB Sihanoukville
• Seller’s bank details: name, account, Swift,

address

Before issuing the L/C invoice, you may check with the importer, whether

• Seller’s signature
• The latest date of shipping: Until this date the

shipment must have left the port.

importer, whether anything is still missing or should be changed.

Certificate of Origin (C/O)

What experience do you have

• To allow import-tax free import to the EU, shipments of goods

from Cambodia need to be accompanied by a C/O.

• The C/O is issued by the Ministry of Commerce. Only
• rganisations registered under the Ministry of Commerce are

do you have with C/O?

• rganisations registered under the Ministry of Commerce are

entitled to obtain it. The IFC Handbook on Export Procedures provides many details on registration and formalities (see Selected Reading).

• In 2008, costs to obtain a C/O in Cambodia were estimated to

be up to 200 US$: − 70 US$ for inspection and 30 US$ for products − up to 100 US$ for other expenses.

• The procedure can be cumbersome in the beginning. For

instance, the MoC asked for a stamp/signature of village elders instance, the MoC asked for a stamp/signature of village elders that the goods were really produced in that village.

• For low value consignments to the EU (less than 6,000 € incl.

transport costs), the C/O can be replaced by an exporter statement, which needs to follow precisely a standard text.

Certificate of Origin (C/O)

This is a low value consignment of commercial nature. The total value of these goods including product value, shipment costs and insurance is ...... US$. According to the Generalised System of Preferences (EC GSP), article 80 (b), According to the Generalised System of Preferences (EC GSP), article 80 (b), “consignments of a commercial nature of a value not exceeding 6,000 € may be accompanied by an invoice declaration in place of Form A” (annex 18 of the EC GSP). The importer is advised to check up on the country specific requirements and regulations for low value consignments with his national customs authorities. The exporter of the products covered by this document declares that, except where otherwise declared, these products are of Cambodian preferential origin according to the rules of origin of the Generalised preferential origin according to the rules of origin of the Generalised System of Preferences of the European Community. Phnom Penh, Cambodia, date Signature This sentence must be written exactly like this!

How to work with the self-declaration

Who has already experience

• A problem is that EU customs officers are very often

not aware of this regulation. This can create a lot of frustration for the buyer, as it can lead to endless discussion and goods being blocked at the customs.

experience with the self- declaration?

discussion and goods being blocked at the customs.

• In order to solve this problem, it is recommended to

add to each invoice 3 pages: − Cover page − Copies of pages 32/33 of the EU regulation

• Inform your customer about this and send him the PDF

file with the EU regulation. You will find the complete file with the full text of the regulation on your CD.

• In case of any further question, he shall show this to

the customs officer.

For further details

• See document: The European Community‘s RULES OF ORIGIN for the

Generalised System of Preferences , document name: “guide- contents_annex_1-en.pdf”

• Print cover pages and pages 33/34, Article 5.12: Special provisions for the
• Print cover pages and pages 33/34, Article 5.12: Special provisions for the

export of low value consignments

• See article 4.3, pages 24/25, for the invoice declaration text in English and

French

• Cambodia is mentioned on page 50 (at the bottom of the page).

For the C/O and the self-declaration, the C/O requirements must be met:

• Either product and raw material come completely from Cambodia
• Either product and raw material come completely from Cambodia
• Or the product has at least undergone sufficient processing, e.g. at least 2

having undergone 2 processing steps in Cambodia

Text cover page Information for EU Customs Clearance

According to the European Community‘s RULES OF ORIGIN for the According to the European Community‘s RULES OF ORIGIN for the Generalised System of Preferences, pages 33/34 (s. following pages), consignments from least developed countries of a commercial nature which contain originating products of a value not exceeding €6000 may be accompanied by an invoice declaration in place of the Form A. The declaration may be written on the invoice, the delivery note or any

• ther commercial document relating to the consignment and describing the

product. Import tax is not applicable in this case.

Print cover page EU document + pages 33/34

Import taxes

• For import to the EU, the buyer has to pay import tax and import VAT, if he

does neither get a C/O nor the exporter self-declaration.

• Companies can claim Import-VAT back. Does not matter to them. Private

persons have to pay import VAT according to national laws (for instance, in persons have to pay import VAT according to national laws (for instance, in Germany19 % in general and for goods with reduced tax (books, food, etc.) 7%.

• Import tax depends on the item. In Germany, tax rates are for instance:

− Textile garments: 12%, leather garments: 4%, leather shoes: 8%, gold and silver jewelry: 2.5%, other jewelry 4%, decorative items made from wood or copper: 0%, books/paintings/posters: 0% , CD‘s 3.5%, furniture: 0-5.6%, cosmetic articles: 0-6.5%

• For German tourists in Cambodia: For goods for own use as souvenir articles
• r gifts of a product value of up to 430 €: completely tax free (no import tax, no

import VAT, between 430 and 700 €: 17.5% reduced tax (for both, import tax and import VAT together)

TARIC Codes for some handicraft products

• Indication of international TARIC codes is required for the C/O. A list with

TARIC codes used for some handicraft articles, compiled by the International Trade Centre – ITC, will be on your CD. Silk scarves are for example: 62141000100 62141000100 Extract of the ITC list

• The file is available as well at www.artisanconnect.net

TARIC code database

• A TARIC codes database is available at:
• http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Taric=&L

ang=en&Screen=0&Description=&Area=&redirectionDate=20101023&Level=&L angDescr=en&Expand=false&SimDate=20101023 angDescr=en&Expand=false&SimDate=20101023

• The IFC Handbook on Export Procedures in Cambodia mentions another

database: www.asycuda.org

Selected reading

• IFC: Handbook on Export Procedures, Practical Guide for Small and Medium

Enterprises in Cambodia, www.moc.gov.kh/pdf/pdfnews/Handbook-Export- Prodcedure-Eng.pdf (free of charge)

• Market studies and other documents at www.artisanconnect.net and

www.intracen.org/exporters/creative-industries (free of charge)