What is Cost-based Pricing (Margin and Mark-up) for Salesforce Products and Why is it Useful
Cost-based Pricing allows you and your sales team to specify either a Cost Mark-Up percentage or a Sales Price Margin percentage on Opportunity Product or Quote Line Item. It means that if your business is focused on selling based on mark-ups, then rather than a Sales Price being fixed, you can edit either the mark-up or the margin to calculate a new Sales Price. This additionally generates a real-time calculation of the gross margin achieved on any given product added to an opportunity, which you can optionally choose to show your sales users.
Cost-based Pricing is available in Flexpricer v1.48
Simple Setup of Flexpricer’s Cost-Based Pricing (Margin and Mark-up)
- Go to FlexPricer Settings page
- Check the box 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 Cost-based Pricing (Margin and Mark-up) Works
- A product can be designated as having its Sales Price calculated as a percentage of its cost by
- Selecting a value in the Cost-Based Pricing picklist (either Mark-Up or Margin)
- Specifying a Unit Cost for the product (either on the Product record 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% 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 calculations are performed on the basis of the Unit Cost being ‘marked-up’ by a specified percentage.
- If the Cost-Based Pricing picklist value is Margin, then calculations are performed on the basis of the Sales Price achieving a certain Margin percetange given the Unit Cost.
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 clicking on the Sales Price pop-over, 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 clicking on the Sales Price pop-over, 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)
Important Considerations
- As you can see from the 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.