Updated June 28, 2023
Difference Between Cost vs Price
For each business currently operating, the game boils down to two major things: how much the business is incurring and how much it charges its customers to recover that cost. In this Cost vs Price article, we will understand the key differences between the two major parameters of any business and what tends to drive them, which helps the business 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 incurred to produce the goods or services the company sells to its customers. The cost can be in the form of raw material, selling or distribution expenses, staff cost, and any other expense. The cash outflow, which is gone out of the business to produce the output, refers to cost. On the other hand, price is the amount the company charges from the customers with the intended margins added to it. Price becomes the business’s revenue, and cost becomes the cost of goods sold and other expenses for the business.
- When charged by the customer, price results in cash inflow for the business, whereas cost, when incurred, refers to cash outflow. The difference between the two can result in a cash surplus or deficit. The company reports profits and losses for a particular duration of time and seeks working capital requirements.
- There can be broadly two types of cost: direct and indirect. Direct cost refers to the cost of gold sold, which is directly incurred to produce the output; on the other hand, indirect cost refers to all other costs related to the selling and advertising the products. On the other hand, the price can also be broadly categorized into two parts: revenue from the sale of the products and income from other sources. Revenue from the product’s sale is directly linked to the sale of the products the company has manufactured and sells 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 that are not in the mainline of business
The cost can be labor, capital, staff, selling and distribution, marketing, advertising, etc. On the contrary, the Price can be the maximum retail price of the product or other prices charged by different customers.
Cost vs Price Comparison Table
Let’s look at the top 7 Comparisons between Cost vs Price.
| Cost | Price |
| Cost is ascertained from the producer’s perspective. | The customer’s perspective ascertains the price. |
| Cost is the number of expenses incurred by the product producer to produce the goods. | The customer charges a price for the goods and services sold to them. |
| Cost results in the outflow of cash | Price results in an inflow of cash |
| Cost does not include the margins of the product. | Price includes the margins of the product. |
| A margin is applied to the cost. | Markup is applied to the Price. |
The cost of a product depends on various numbers of factors: –
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The price of a product depends on various numbers of factors: –
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| The business intends to decrease the cost. | The business intends to increase the price. |
Conclusion
The differences between the Cost vs Price of the product sold by the company result 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.
An Analyst of the company should do a detailed analysis of cost vs price, and proper forecasting of the drivers of cost and price demanded should be done to charge the customer’s right price and maintain the margins of any business.
In today’s world, major multinational is on a cost-cutting drive as the margins are being hit by the price charged by them, resulting in laying off employees and other cost-cutting initiatives.
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