Export Pricing: Cost Build-Up from EXW to FOB, CFR and DAP

Build an export price step by step: ex-works cost, margin vs markup, then FOB, CFR and DAP prices with a full worked example, floor price and credit costs.

An export price is not your domestic price converted into euros or dollars. It must cover costs that do not exist at home, such as export packaging, inland transport to the port, customs formalities, freight, insurance and the cost of waiting 60 days for payment, and it must match the Incoterms® 2020 rule you quote. A price that forgets one of those items loses money on every container; a price that piles them up without checking the market never wins an order.

This lesson shows a complete, figure-by-figure build-up for one container of porcelain tiles from an Algerian factory to a buyer in Senegal, from the ex-works cost to FOB, CFR and DAP prices. Along the way you will see the difference between margin and markup, how to treat logistics costs, how payment terms change the price, and how to find your floor price before a negotiation.

Three ways to set an export price

• Cost-plus pricing: cost + margin. Simple and safe, but blind to what the market will pay.
• Market-based pricing: start from the price the end customer or importer pays and work backward. Essential to know whether you can compete at all.
• Value-based pricing: price according to what your product is worth to the buyer (reliability, short lead time, certification, brand).

In practice you use all three: cost-plus gives the floor, the market gives the ceiling, and value tells you where to stand between the two. This lesson focuses on the cost build-up, which you must master first.

Step 1: Know your ex-works cost

Calculate the cost per unit for the export version of the product, including export packaging. Separate variable costs (which disappear if you do not produce the order) from allocated fixed costs (overheads that exist anyway).

The budget rate is a deliberate choice: use a slightly prudent rate rather than today's spot rate, and see currency risk for how to protect it.

Margin or markup: the most expensive confusion

Margin is profit as a percentage of the selling price. Markup is profit as a percentage of the cost.

• Price for a target margin: price = cost / (1 − margin)
• Price with a markup: price = cost × (1 + markup)

With a full cost of 6.50 EUR and a target margin of 15%, the ex-works price is 6.50 / 0.85 = 7.65 EUR per m². If you simply add 15% to the cost, you get 7.475 EUR and a real margin of only 13.0%. On 30 containers a year, that gap is worth more than 5,000 EUR.

Step 2: Build the price from EXW to FOB, CFR and DAP

The tiles leave the factory near Oran, are loaded on a ship at Oran and discharged in Dakar. The buyer's warehouse is outside Dakar. Here is the full build-up for one 20-foot container (illustrative figures).

Which costs belong to which Incoterm?

• EXW: the goods at your premises, not loaded. Everything else is the buyer's.
• FOB Oran: you add everything up to loading on board at Oran, including export clearance.
• CFR Dakar: you add the main freight to Dakar, but the risk passes to the buyer when the goods are on board at Oran. See CFR. Whether destination terminal charges are in your freight or billed to the buyer depends on the carrier's terms; say so in your quotation.
• DAP named place: you add everything up to arrival at the named place, ready for unloading; import clearance, duties and unloading stay with the buyer. See DAP. Under DAP you bear the risk during the voyage, so insuring the cargo is wise even though the rule does not oblige you to.

Freight components (base rate, BAF, terminal handling) are covered in the logistics course, and you can compare all rules side by side in the Incoterms matrix.

Margin on the product or on the total?

In the table, the margin stays at 1,150 EUR whatever the Incoterm. As a percentage of the price, it falls:

If you want 15% on the total delivered price, divide all your costs (9,935 EUR) by 0.85: the DAP price becomes 11,688 EUR, or 11.69 EUR per m². That is 5.4% more expensive for the buyer.

Neither approach is wrong. Passing logistics at cost is common and competitive, but then you carry freight, waiting-time and currency risks for nothing. A middle way is to keep the margin on the product and add a small allowance on logistics (here the 150 EUR contingency line), which covers the risks you take without inflating the price.

Step 3: Adjust for payment terms and currency

The price above assumes payment on shipment. Credit costs money.

• Financing cost: payment 60 days after the bill of lading date, financed at 8% a year, costs 11,085 × 8% × 60 / 365 = about 146 EUR per container, or 0.15 EUR per m².
• Credit insurance or bank fees: an export credit insurance premium, the fees of a letter of credit or of a documentary collection. Add them as a percentage of the invoice.
• Currency: here the buyer pays in EUR, which suits a Senegalese importer because the CFA franc (XOF) has a fixed parity with the euro. Your risk is the EUR/DZD rate between the quotation and the conversion of the proceeds.

Step 4: Check against the market and know your floor

The buyer's landed cost

Your DAP price is not what the buyer pays in the end. Add import duties under the applicable tariff, VAT (18% in Senegal), port and clearance fees and unloading, and you get the buyer's landed cost. Compare it with what local and imported competing tiles cost. If your landed cost is 15% above the market, no margin calculation will sell the container. The duty side is explained in import duties, VAT and landed cost.

Your break-even and floor prices

• Full-cost break-even: all costs with no margin, here 9,935 EUR DAP, or 9.94 EUR per m². This is the break-even price you need in the long run.
• Short-term floor: variable costs plus delivery costs, here 9,935 − 1,400 (allocated overheads) = 8,535 EUR, or 8.54 EUR per m². Accept a price near this floor only for a one-off order that fills spare capacity, never as a market price.

Common export pricing mistakes

• Converting the domestic price instead of rebuilding the cost for the export version (packaging, labels, longer shelf life).
• Using markup when you mean margin.
• Quoting CFR or DAP with an old freight rate and no validity date.
• Forgetting the cost of credit, bank charges and currency conversion.
• Ignoring destination charges under DAP, or quoting DAP without knowing the delivery address.
• Never checking the buyer's landed cost against the local market.
• Giving the same price to every market regardless of duty, competition and payment risk.

Putting it into practice

On Incoforms, the costing of a shipment records the revenue from the invoice, every cost by category with an estimate and an actual, and computes the product cost per kg or per unit, the break-even price and the price needed for your target margin. The what-if simulator lets you test a change in price, exchange rate, freight or costs before you send the quotation.