Marketing Strategy for Small- to Medium-Sized Manufacturers

The Price Is Right

Since the 79 firms with pricing problems shown in Table 40 reported actual cost plus margin as their most used pricing method, and the previous material described problems of not knowing actual direct labor in addition to problems using it as a basis for allocating overhead, it is reasonable to say that combining uncertain direct labor cost with approximate overhead allocations makes effective pricing all the more difficult.

Because of the uncertainty of direct costs and overhead allocation practices, SMMs desiring to operate more profitably might not confidently be able to decide whether to accept a discounted price that will lessen profit or to hold onto the price. The decision is often to take the discount because the additional ...