October 29th, 2012 / Insight posted in

Adapt garment prices to suit home and away

KS writes: I own a design company that sells clothing made by sub-contractors to designer stores. My prices are determined by manufacturing costs, plus a mark-up. Some business-advice books suggest charging higher prices for exports ­ which are not subject to Vat ­ than those goods sold in the home market. What should I do?

Pricing is vital for any business as it determines whether it makes a loss or a profit. Generally the price a business should charge in any market should be the price that maximises its revenues. This issue has nothing to do with not levying Vat on your exports, and you should ignore it when making comparisons. In your case the export market should be treated as different from the home market, and the fact that the costs of selling overseas are higher would seem to justify higher prices. These costs include currency conversion ­ and possible foreign-exchange losses if the rate goes against you ­ the risk of bad debts and the costs of debt recovery.