Difference Between Cost vs Price
For each business operating currently in the world, the game boils down to two major things at the end that is how much cost the business is incurring and how much price the business is charging from their customers in order to recover that cost. In this Cost vs Price article, we will try and understand the key differences between the two major parameters of any business and what tends to drive them which helps the business to gain steady margins in the long run.
Head to Head Comparison between Cost vs Price (Infographics)
Below is the top 7 difference between Cost vs Price
Key Differences between Cost vs Price
Let us discuss some of the major differences between Cost vs Price:
- Cost for any business refers to the expenses which are incurred by the business in order to produce the goods or the services which the company sells to their customers. The cost can be in the form of raw material, selling or distribution expenses, staff cost, and any other expense. Basically, the cash outflow which is gone out of the business to produce the output refers to cost. Price, on the other hand, is the amount that the company charges from the customers which have the intended margins added to it. Price becomes the revenue for the business and cost becomes the cost of goods sold and other expenses for the business
- Price, when charged from the customer, results in cash inflow for the business whereas, cost when incurred refers to cash outflow for the business. The difference between the two can result in cash surplus or deficit due to which the company reports profits and loss for a particular duration of time and seek working capital requirements
- There can be broadly two types of cost that is direct cost and indirect cost. Direct cost refers to the cost of golds sold which is directly incurred to produce the output, on the other hand, indirect cost refers to all other costs which are related to the selling and advertising of the products. Price on the hand can also be broadly categorized into two parts which are revenue from the sale of the products and income from other sources. Revenue from the sale of the product is directly linked to the sale of the products which the company has manufactured and are selling it to its valuable customers. Whereas, income from other sources refers to the ancillary income which is earned by the business by entering into different ventures or other avenues which are not in the main line of business
Cost can be labor, capital, staff cost, selling and distribution expenses, marketing expenses, advertising expenses etc. On the contrary, Price can be the maximum retail price of the product or other price charged from different customers.
Cost vs Price Comparison Table
Let’s look at the top 7 Comparison between Cost vs Price
|Cost is ascertained from the producer’s perspective||Price is ascertained by the customers perspective|
|Cost is the amount of expenses incurred by the producer of the product to produce the goods||Price is charged from the customer for the goods and the services which are sold to them|
|Cost results in the outflow of cash||Price results in an inflow of cash|
|Cost does not include margins of the product||Price includes the margins of the product|
|A margin is applied on cost||Mark up is applied on Price|
|Cost of a product depends on various numbers of factors: –
||Price of a product depends on various numbers of factors: –
|The business intends to decrease the cost||The business intends to increase the price|
The differences between Cost vs Price of the product sold by the company results in margins for the business which is vital for the existence and operation of any healthy business activity. These two factors are of paramount importance.
Detailed analysis of cost vs price should be done by an Analyst of the company and proper forecasting of the drivers of cost and price demanded should be done in order to charge the right price from the customer and to maintain margins of any business.
In today’s world, major multinational is on a cost-cutting drive as the margins are being hit from the price charged by them which results in laying off of employees and other cost-cutting initiatives.
This has a been a guide to the top difference between Cost vs Price Here we also discuss the Cost vs Price key differences with infographics and comparison table. You may also have a look at the following articles to learn more.