These definitions are not accounting definitions, but are mine as they address salespeople working everywhere.
- Landed Cost
- Loaded Cost
This term is used for the actual cost, or raw cost of a product. If a vendor quotes a price, that is the cost.
This term is from the transport industry. It means Freight on Board, and indicates whether the vendor or the customer is paying the freight to get the product to a selling facility. FOB shipper requires the purchaser to pay the freight to have the merchandise delivered to the store. FOB delivered means the vendor is paying for the freight charges.
The Landed Cost consists of the raw cost of a product, plus the cost of shipping.
Item A = $8.00
Shipping = $2.00
Landed Cost = $10.00
The Loaded cost of an item is more difficult to calculate. Some companies add variable costs to the landed cost to arrive at loaded cost. The most common is a delivery expense added to the Landed Cost to get to the salesperson’s cost.
ROI stands for Return on Investment. It is an accounting term that refers to to a profit percentage for the investment made.
Discounting is reducing the selling price of a product from the listed selling price. With a list price is $10.00 and a selling price of $8.00, this calculates as a 20% discount from the seller.
Margin (Profit Margin)
This refers to the percentage above cost the product is sold for. With a cost of $10.00 and a selling price of $20.00, the margin is 50%.
Markup is a way to determine selling price by applying a multiplier to cost to get a price. With a cost of $10.00 and a markup (multiplier) of 2.0, the selling price is $20.00
Profits are the most important factor to both the business owner and the commissioned salesperson. This is the difference between the selling price minus the loaded cost. A $20.00 sale with a $10.00 cost calculates to a $10.00 profit. (gross profit, but that’s for later).
That is my quick primer for the terms used in this book. If you have questions or comments, please don’t be shy. Ask.