How Invoicing Software Can Help With Geographical Pricing
If you have ever adjusted the price of your product based on the location of a buyer, you have used geographical pricing. Determined by distance, shipping costs, taxes and even the nature of the area such as urban or rural, pricing based on geography is a necessary part of any business, and easily executed with the help of invoicing software.
Read on to discover how international pricing works, the five factors that affect it, and how to use an invoicing software solution for the task.
What Is Geographical Pricing?
Setting prices based on a country a customer resides in is a technique that is called geographical pricing. For example, McMeal at McDonald’s in New York is $10 while the same or equivalent in Paris is €9.00 or $10.13. To extrapolate, 0.33L of water in New York is $1.81 and €2.05 or $2.31 in Paris. There are many reasons why these products are priced differently in various countries, such as shipping, taxes, and more.
Here are the five different categories of international pricing models:
- Zone Pricing - In this category, prices rise in direct correlation to increasing shipping distances.
- Uniform Delivery Pricing - Here, the same fixed price is offered to all countries.
- FOB or Free On Board - The warehouse and transportation charges are borne by the buyer.
- Basing-Point Pricing - Goods are shipped from specific cities that act as basing points, and priced accordingly.
- Freight-Absorption Pricing - The seller absorbs most or all of the shipping costs.
Factors That Influence Pricing For Overseas Customers
When building a geographical price model for your business, it is important to consider the factors that influence it.
The cost of transporting a product to a customer is called the shipping cost. This cost increases the longer the distance of delivery.
Market Demand In Target Country
A company can price products differently based on demand and supply. For example, a soft drink that costs $3.99 on a regular day might cost more during special events or in a club.
Supply In Target Market
Another factor is the supply or the availability of the products in different geographic locations. For example, the availability of fish is higher in coastal areas such as Hawaii than the Middle East.
Price Taker/Price Maker
If you are a price taker, you adopt the price dictated by the market, as opposed to price makers who can decide independent prices as they dominate a large share of the market.
Tax varies depending what state you live in. For example, sales tax for groceries in Georgia is 4% as opposed to 7% in Louisiana.
Using Invoicing Software
Geographical pricing helps businesses incorporate shipping into their overall calculations. However, if you want to enhance the process, invoicing software can help even further.
While it is a hassle to do business around the world when you are a small business owner or freelancer, a good billing software can help you price your products. You can easily set different prices for customers using various currencies, with invoice software that supports multiple currencies.
With this feature, companies can easily update their pricing model for goods and services for several geographical locations.
Here are a few examples:
- FreshBooks offers multi-currency billing for overseas customers with over 170 currencies.
- Xero supports 160 currencies with automatic currency conversions and custom currency preferences.
- QuickBooks is another software service provider where you can transact with over 155 legal tenders.
- Invoice Ninja provides over 95 currencies for doing business with overseas clients.
When modifying pricing based on the location of the buyer, you can also customize the respective invoices when it comes to language. From personalizing payment transactions to activating the multilingual feature, billing platforms help you transact with international suppliers easily.
Multi-lingual interfaces also help you do business transactions in the language you are most comfortable with, while letting clients opt for their preferred language for accounting purposes.
Take a look at three accounting software with superb support for multiple languages.
- Invoice Ninja supports over 30 languages, the highest number in the industry.
- FreshBooks is a worthwhile alternative that supports five languages: English, Polish, Swedish, Turkish, and Dutch.
- Square Up offers functionalities in two languages: English and Spanish.
Automatic VAT Function
Whether or not you add shipping costs to the AR/AP, you need to be on top of taxes as a business owner to keep your finances balanced. Invoicing software can be used to automatically apply taxes by specific contacts or projects.
Today you can apply VAT to income and expenses in an instant for EU clients, and HST/PST for North American clients too.
Take a look at three billing software solutions to help you transact based on geographical pricing including taxes.
- An automated sales tax calculator for domestic clients, and an international tax calculator for overseas clients are the best features on QuickBooks to help with tax.
- Offering a 1042-S tax reporting module and 1099 forms, Tipalti offers compliant tax reports.
- From tracking all your income/expenses to capturing AR/AP and categorizing accounts, FreshBooks offers many ways to generate tax-compliant reports.
Appropriate pricing is the absolute key to success if you have customers from different parts of the world, and it is important that you create an accurate pricing model that correctly considers all factors.
Geography-based pricing is based on considerations such as shipping costs, competition, tax, supply, demand, and more. Start using billing software that supports multiple currencies, languages, and taxes functions to execute all your pricing needs.