What is special order pricing?
The special order pricing is a common technique in various businesses. In this technique, the lowest price of a product is defined by the business owner up to which the customer can place a special order. If he places the order below that specified price, it will be rejected by the business right away.
How does a special order pricing work?
Special order is a type of order which is placed by the customers at the price lower than the normal price. Most of the businesses don’t allow their customers to place a special order. However, in some circumstances, there is an idle capacity of the production in a company and it wants to increase its sales. In such circumstances, a business allows its customers to place a special order. It should be noted that the business accepts the special order only if its revenue is more than the cost.
Special order pricing is a procedure to calculate the lowest price of a product or service. This is the price at which a special order is accepted and below this, the order is rejected. It is a circumstantial issue. If the customer tends to lower the normal price then the market orientation that is a high sale or low sale will determine whether to accept or reject the offer. It happens that the incremental profits from the special order are greater than existing incremental costs.
Contribution approach is another term defining the sales, in which price is lower than normal still generates some sales a contribution per unit, to special order pricing.
Sometimes the customer will demand alterations to the price. It is usually a unique order not affecting regular sales. The company should complete a special order without any extensive efforts. In other words, it must have additional resources to complete the order. The common strategy applies to special order is as following
- If incremental incomes are less than incremental costs, it is better to reject the special order unless qualitative features are pronounced to do so.
- If incremental profits are greater than incremental costs, it is recommended to accept the special order unless some quality features hinder the decision.
- If incremental revenues are balancing the incremental costs, then it is better to put emphasis on quality features to execute the decision.
This complicated business issue can be made easy by making a special order pricing template via free customizable templates which highlight the incremental readings to take a prompt decision of acceptance or rejection.
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Special Order Pricing Template
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What should be considered while accepting the special order?
- Before you accept the special order, make sure that your business has excess capacity. In other words, your business is capable of doing the work.
- There are some situations in which a business does not get affected by accepting the special order. For example, a situation in which a business has already paid the fixed cost. In such a situation, there is a sunk cost that does not affect the business. If your business is also experiencing such a situation, you can accept the special order
When you have decided to accept the orders at the price lower than the normal, it’s high time you started figuring out what should be the price lower than normal. It is one of the most difficult decisions a business has to make. The use of special order pricing template helps a business in specifying the price to be specified.
Special order pricing template:
Special order pricing template is a helpful tool as it helps a business boosts its sales without affecting its overall performance. All you need to do is download this readymade template and start pricing