4 Techniques of Price Analysis

Whenever you purchase something, your instant reaction is to analyze the cost in your mind. Of course, when you are analyzing cost, you inadvertently analyze the price as well. As a layman, you don’t need to get into pricing analytics but if you are buying goods and services on a large scale, they sure come into picture. There are many ways to analyze price and these techniques are listed by FAR (Federal Acquisition Regulation). The following points list out those techniques –

Using Published Price Lists For Comparison – A published price list is released for normal and commonly used products and services and that can you used as a standard for comparison of prices. However, you can only use this method for those items that are similar in nature to such commonly used products and services or else, it will be ineffective.

It is also important that you take into account the common practices of the industry during the price estimation. Some industries provide discounts beyond a certain volume or weight, depending upon the buying and such things must be included when you undertake the comparison. You should also include a brief statement explaining your motivation and reasons for using the price lists for comparison.

Using Prior Quotations For Comparison – You have to find out whether the quotation you have been offered is practical and fair or not. For this, the easiest thing to do is comparison with past quotations. It is usually practical to take out quotations from the past year or so and then compare them with the current one. This method works best for time and season sensitive products, like when a product is behaving at its best in a particular season or time period. You should also include a brief statement explaining your motivation and reasons for using the prior price quotations for comparison.

Using Competitive Bids For Comparison – This is easily the best way to find out the correctness and reasonableness of a price. You can approach other suppliers of the same product and find out what rates they are offering. This would be the easiest way to know if the product is adequately priced. However, a total cost analysis would still be compulsory. You should also include a brief statement explaining your motivation and reasons for using the competitive bids for comparison.

Using Legal Statements Or Pronouncements – There are some essential commodities and other items, the prices of which are declared by the government. You could find out about the legal pronouncement which explains the structure of the price of the product. When you buy the said product or service, you have to give a reference to the pronouncement.

When it is not possible to use comparison and published material as a yardstick, always go old school. Take individual components and analyze them thoroughly to understand the pricing mechanism. This might take some time but the results would be conclusive and much more quality.

Vijayraj Reddy
Vijayraj Reddy is founder & editor-in-chief of Startmysalary.com, a financial blog which helps people to earn money, invest money and save money. You can find him on Facebook & Twitter or send him email at [email protected]

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