What Does a Pricing Analyst Do?

Pricing a product, commodity or service is a specialized skill. The job of a pricing analyst is to understand market conditions perfectly and help in deciding product prices. In today’s competitive business world, pricing your product correctly has become very important to outdo competitors. The interviews for these jobs are tough, as companies prefer to recruit top talent for such jobs.

Job Description of a Pricing Analyst

Pricing analysts help in deciding the prices of the products of a company for which they work. For this, they have to consider many factors such as the nature of the product, prices of goods of competitor companies, and the paying ability of the consumers. These analysts have to find out how much a consumer is willing to pay and what service he expects by conducting intensive research.

He has to determine or find out which are those products, for which the consumers are willing to pay a higher price and what are the exact reasons for that. They need to be aware of price trends prevailing in the market. For the purpose of research, they also refer to historical prices and data about the prices of commodities under different market conditions, to arrive at correct conclusions. They work closely with the marketing team of the company.

Educational Qualifications

For becoming a pricing analyst, you ideally need to have a college degree in subjects such as mathematics, economics, marketing or statistics. With the help of a degree in these fields, you will be able to enter this field quite easily. The institute from where you complete your course matters a lot when it comes to securing the best jobs in the industry.

With a master’s or doctoral degree in the above subjects, you can get the most coveted jobs in this field. Most of these professionals are management graduates and post graduates from reputed universities. A good knowledge of accounting, price trends, and effective communication skills can make you a successful pricing analyst.

Expected Salary

The salary of pricing analysts largely depends on their educational qualifications, years of practical experience, job location, and type of employer. The ones working for top-notch companies in the financial services, production, and manufacturing sectors can expect to earn a better salary than those working for the smaller companies. The salaries are much higher in the cities, as compared to the rural areas. As per various salary surveys, the median salary for a pricing analyst is around USD 52,000 per year. On the whole, most of them earn between USD 42,000 to USD 55,000 per year. You can definitely earn more than this amount if you have the relevant work experience and have worked on large projects successfully.

Break Even Analysis Formulas

What does breaking even mean? The break even point is where the total revenue on a product/service is equal to the total cost incurred. Let me explain this concept with the help of a simple example. Suppose it takes $10 to make a chocolate cake, the price at which the cake business will break even will be at $10. Simply put, it’s the point where the cost of manufacturing = selling price.

In terms of pricing, the break even point shows the no-profit-no-loss position. So if you decide to price your product below the point, then you will incur a loss. On the other hand, if you price your product above the break even point, you will earn a profit. Thus, the break even point is very crucial as in a way, it helps form one of the important bases of product pricing. It also helps you decide if the product is worth manufacturing. For example, if it takes $100 to manufacture a product, but your market research suggests that the people aren’t ready to pay a cent over $56, you know that unless you can somehow achieve a breakthrough decrease in the price over a period of time, there is going to be no point in trying to sell such a commodity.

Break Even Calculation

Before we try to calculate it, we should know the meaning of some terms that are included in the formulas.

Fixed Costs: For running your business, there are some costs that you will incur, irrespective of your productive capacity. Some charges such as rent, depreciation of machinery, etc, you incur, whether you produce or not. Such costs are called fixed costs. As long as the productive capacity stays between a particular range, (example: unless you have to double the production area and therefore, rent) that cost will remain the same.
Variable Costs: There are other costs that will vary according to production, such as wages, cost of purchases, etc. Variable costs of production will change as you increase (or decrease) your production.
Price: Well, we all really know what price means, but just to be sure, price is the monetary value realized by your product. It is the amount of money that the product commands in the market.
Volume: Volume is the total number of products produced.

Now that we know all the associated terms, let us go back to the meaning of break-even point. The break even point is where total costs and the total price is the same. So using this as the basis for the derivation, let us now derive the analysis formula.

Total Cost = Total Revenue

Expanding this, we say that the total cost will be the sum of the fixed component and the variable component per unit produced. Total revenue on the other hand will be equal to the price of one unit multiplied by the number of units sold. Hence, we get the break even analysis formula.

(Variable Costs per unit * number of units) + Total Fixed Cost = Price per unit * number of units.

Another required calculation is how much volume you will need to sell in order to break even. Its volume is given by the below given formula.

Break even point = Fixed Costs / (Price per unit – Variable Costs per unit)

The other consideration in the analysis is the amount of time it will take for you to break even. For that you will need to define a certain time-period. Say, you want to know how many months it will take you to break even, then the period will be defined in months.

Break even period = Break even volume / sales per period (per month)

But the thing to keep in mind while you do your break even analysis is that this point is just one consideration. Many businesses, like the airline business, have long gestation periods and it may be years till they can recover the money they have invested.

But that doesn’t necessarily mean no one in America is starting airlines. In the long run, there are chances that you may make exponential profits in some businesses, if you are willing to suck up a few years of losses.