What is Cost-Based Pricing in Salesforce and Why is it Useful
Cost-Based Pricing allows you and your sales team to specify either a Cost Mark-Up percentage, a Sales Price Margin percentage or a Gross Profit amount on Opportunity Product or Quote Line Item.
It means that if your business is sells based on specifying the difference needed between a cost and a Sales Price, your users can now edit either the mark-up percentage, or the margin percentage or the gross profit amount to calculate a new Sales Price.
This additionally generates a real-time calculation of the gross margin amount and percentage achieved on any given product added to an opportunity, which you can optionally choose to show your sales users.
Simple Setup of Flexpricer’s Cost-Based Pricing (Margin, Mark-up & Gross Profit)
- Go to Flexpricer Settings page
- Enable the slider next to Cost-Based Pricing. This will enable the feature.
- Edit the Product page layout and add the following fields to the layout
- Unit Cost
- Cost-Based Pricing (picklist)
- Edit the PricebookEntry page layout and add the following field to the layout
- Unit Cost
How Margin and Mark-up features works
- A Product can be designated as having its Sales Price calculated as a percentage of its cost by
- Selecting either Mark-Up or Margin in the Cost-Based Pricing picklist
- Specifying a Unit Cost for the product on either on the Product record (if single currency) or PricebookEntry
- Treating the List Price PricebookEntry field as a percentage rather than a currency value (i.e. in Cost-Based Pricing calculations, $15.00 as a ‘List Price’ is considered to be 15.00% when calculating the Sales Price, £23.12 would be considered to be 23.12%)
- If the Cost-Based Pricing picklist value is Mark-Up, then the Sales Price is calculated on the basis of the Unit Cost being ‘marked-up’ by a specified percentage.
- If the Cost-Based Pricing picklist value is Margin, then the Sales Price is calculated on the basis of the Sales Price achieving a certain Margin percentage given the Unit Cost.
How Gross Profit Pricing works
- A Product can be designated as having its Sales Price specified by a Gross Profit Amount by
- Selecting Gross Profit in the Cost-Based Pricing picklist
- Specifying a Unit Cost for the product on either on the Product record (if single currency) or PricebookEntry
- When the line item is edited in the product selector interface, both the Sales Price and Gross Profit amounts are available to change.
- If the user changes the Gross Profit, the Sales Price is automatically recalculated based on the Unit Cost.
- If the user changes the Sales Price, the Gross Profit is automatically recalculated based on the Unit Cost.
- If the user has the custom permission to edit the Unit Cost of a line item and chooses to do so, a change of the Unit Cost will cause the Gross Profit to be recalculated. Changing the Unit Cost does not have an effect on the Sales Price.
Example of Mark-Up Pricing in Salesforce
- A Product’s Unit Cost is specified either on the Product record or the PricebookEntry record as $100.
- The List Price of the Product is specified as 30%.
- The Cost-Based Pricing picklist value on the Product record is Mark-Up
When added to an Opportunity or Quote, the Sales Price of the Product will be automatically calculated as $130.
$100 + ($100 * 30%) = $130
Cost is $100, mark-up is $30, sales price is $100 + $30 = $130
When editing the line item, instead of editing the Sales Price, the sales user can edit the Mark-up %.
If the sales user changes the Mark-up % to 60%, then the Sales Price of the Product will be automatically calculated as $160
$100 + ($100 * 60%) = $160
Cost is $100, mark-up is $60, sales price is $100 + $60 = $160
Example of Margin Pricing in Salesforce
- A Product’s Unit Cost is specified either on the Product record or the PricebookEntry record as $100.
- The List Price of the Product is specified as 30%.
- The Cost-Based Pricing picklist value on the Product record is Margin
When added to an Opportunity or Quote, the Sales Price of the Product will be automatically calculated as $142.86.
$100 / (100% – 30%) = $142.86
Cost is $100 (70% of sales price), margin is $42.86 (30% of sales price)
When editing the line item, instead of editing the Sales Price, the sales user can edit the Margin %.
If the sales user changes the Margin % to 60%, then the Sales Price of the Product will be automatically calculated as $250
$100 / (100% – 60%) = $250
Cost is $100 (40% of sales price), margin is $150 (60% of sales price)
Example of Gross Profit Pricing in Salesforce
- A Product’s Unit Cost is specified either on the Product record or the PricebookEntry record as $100.
- The List Price of the Product is specified as $300.
- The Cost-Based Pricing picklist value on the Product record is Gross Profit
When added to an Opportunity or Quote, the Sales Price of the Product will be $300 and the Gross Profit will be $200.
$300 – $100 = $200
Cost is $100, gross profit is $200 and margin in 66%
When editing the line item, the user is presented with the ability to edit both the Sales Price and the Gross Profit.
If the user changes the Sales Price to $250, then the Gross Profit is automatically calculated as $150
$250 – $100 = $150
Cost is $100, gross profit is $150 and margin is 60%
If the user changes the Gross Profit to $250, then the Sales Price is automatically calculated as $350
$250 + $100 = $350
Cost is $100, gross profit is $250, so Sales Price must be $350 (margin is 71.4%)
Important Considerations
- As you can see from the mark-up and margin examples above, there is considerable difference between the sales prices calculated using the Cost Mark-up method than Sales Price Margin. Ensure that you select the right value in the Cost-Based Pricing picklist.
- By default, costs will not be displayed in the Sales Price pop-over. To display costs in the Sales Price pop-over, set the View Cost on Line Item custom permission on user profiles or permission sets. To allow sales users to edit costs, set the Edit Cost on Line Item custom permission on user profiles or permission sets.
- Specifying the Gross Profit Amount is available only in the Lightning Web Component interface.