Sales price is simply the price attached to an offered product or service. It is the value of a commodity which is being sold. The sales price is usually expressed in monetary terms although it may be expressed in terms of goods in PIK securities as well as in countertrades.
A commodity with a price has either real worth or perceived worth. The real worth of a product related to its manufacturing costs plus added cost for profit purposes. It is the actual worth of a commodity. Perceived worth is a commodity’s worth as per the customer. A manufacturer may create an intangible perceived worth for his/her product so as to drive the price up and make up for real worth.
Sales price vs. sale price
Sales price should not be confused with sale price. While sales price is the whole actual price of a commodity, the sale price is the reduced price of a commodity that is being sold at a discount. Sale price is usually offered as a percentage of the sales price.
Factors influencing the sales price of a commodity
There are a few things that work to give a certain commodity a certain price or value. They include:
1. Cost of production
This is arguably the largest determiner of a commodity’s sales price. It is impossible for a commodity to be sold at a price that doesn’t bring profit to the company unless in special circumstances. There are two types of production costs:
- Fixed costs such as rent and salaries
- Variable costs such as raw materials cost and labor
The price of a commodity should at least cover the variable costs of production
2. Demand and supply
The price rises with a decrease in supply or rise in demand and vice versa. Another factor that is related to the laws of demand and supply is commoditization which reduces the price. This is because it increases supply without altering demand.
3. Governmental regulation
The government may decide to regulate the prices of certain products. It may achieve this through offering subsidies, incentives and decrees. Governmental interference on the price of commodities is unsuitable as it tends to distort the laws of demand and supply.
4. Price of competing commodities
A company should try to set the price of its commodities around the price of competing goods.
5. Money value
When the value of money decreases in a country, the prices of commodities tend to rise as well.