How to Product Prices and Costs interact?
This article explores the relationship between product prices and costs, looking at how they interact and influence each other.
Written by Ian Oldrey
Updated at October 11th, 2023
Table of Contents
Product Base Price and Cost interactions
When managing a product (including setup) there are different price and cost fields that can work in different ways according to how you manage them:
The fields in the Product Record are managed either manually or automatically through trading. These fields then interact with the other pricing tools (Price Structures, Agreements, etc.) to calculate the price for a product within an order.
Adding new products to Merchanter - Prices and Costs
When adding new products to Merchanter using the import from spreadsheet, the Base Price, ACP/LCP/SCP can be uploaded. The more advanced prices from the price structures and manual price agreements are uploaded/created separately.
For the Cost Price Fields the uploaded value is a placeholder until a traded figure replaces it. For example you can upload the Average Cost Price (ACP) of a product at £12.00 each, but when you purchase or stock adjust in stock at £10.50 each, this will become the new ACP.
Base Price
Base Price - This is the “Headline” selling price for a product. It appears dominantly on the product record view, and is used in product searches and in the Basket. It is recommended that the Base Price is the “Retail” price for a product, but it could be the lowest/best price. Definitely use the same Base Price principle across all your products (i.e. “The Base Price is always the Retail Price”). There are multiple ways to set and manage the Base Price:
- Manual - set a specific price. This is great as you can manage the price for the product and easily update over time (For updating base prices on ranges of products see articles on the Bulk Base Price Change tool)
- Uplift from ACP/LCP/SCP - The Base Price can be a calculated uplift from one of the Average, Last or Standard Cost Prices (Not Depot Average Cost Price or Supplier Price). This is useful as it is it automatically moves as the cost to you of the item moves. The disadvantage is the calculated Base Price may not be rounded to an attractive number as a manually entered one could be (i.e. £10.03 rather than £9.99 or £10.00)
Cost Prices
Average vs. Last vs. Standard Cost Prices
Within a product on Merchanter there are three main cost prices that are recorded and can be used for different purposes.
Average Cost Price (ACP)
This is a weighted average of the cost of the stock that has been brought into the depot. This is often the most accurate position of the cost of the product, relative to the stock that has been brought in or made. It is maintained automatically by purchasing, adjusting and milling in stock.
When viewing a product record under the costs tab (see screenshot) in additional to the product average cost prices you can also see listed the average cost prices at all depots (quays) in the left hand column.
Last Cost Price (LCP)
As the name would suggest this is the last price that this product was ordered at. In the settings of the system you can select whether the Average and Last cost prices are updated at the point of receipt or completion of a purchase.
Standard Cost Price (SCP)
This is a management cost price that you have control over how it can best work for each product. The Standard Cost Price can be either manually maintained, so set by a senior user, or be an automatic calculation, based on another figure. Below are the different calculation types:
- Average Cost Price Adjustment - setting a percentage difference from the ACP
- Last Cost Price Adjustment - setting a percentage difference from the LCP
- Base Price Adjustment - setting a percentage markdown from the base selling price
- Best Supplier Price Adjustment - setting a percentage difference from the lowest live supplier price
- Highest Cost Price Adjustment - setting a percentage difference from the highest cost out of the ACP, LCP and any live supplier prices
The Stock valuation for each depot (and location) is calculated by the ACP, LCP and SCP, though the ACP valuation is often the one to use in the financials
When making sales the operator can be shown the cost and margin against any of the ACP, LCP or SCP, but the margin figures for the company will always be against the ACP cost.