Exploring the Pricing Concepts

Imagine that:

• Your company has price lists for different groups of customers.
• Some customers, such as your best customers, receive special pricing.
• Customers can additionally receive discounts based on item groups or properties of the items sold
• Periodically you give discounts on the list price based on volume purchases or during sales events

Businesses have needs for flexibility in pricing. Different customers receive different prices based on the circumstances of the sale.

For example, a one-time customer pays a higher price than a regular customer or one of your resellers. Similarly a customer buying a larger volume will get a better price than a customer buying only one. Internet customers get a lower price than customer who need customer service in a store environment. That is why SAP Business One has several ways to handle pricing.

Let us look at some of the different tools available to set up pricing.

In SAP Business One, we have price lists, period and volume discounts, discount groups, special prices for business partners and specific blanket agreements.

The first and most basic way of pricing is price lists.

You can set up price lists for different groups of customers.

On each price list you can enter a price for each item and unit of measure.

Then when a business partner who belongs to that price list buys an item, they get the right price for their customer group.

A basic price for the product may not be enough.

You may want to set up sale prices for a limited time period. You may want to give a discount when a customer buys in volume.

Period and volume discounts allow you to define discounts by dates and based on volume based on an existing price list. The discounts entered here will override the basic price in the business partner's assigned price list.

The unit of measure defined in the period and volume discounts must match the unit of measure specified in the document row for the discount to apply.

The next level of pricing is the discount groups.

You can add discounts based on item group, item properties, and item's manufacturer. These types of prices are called discount groups.

If a sales order line item is relevant for a discount group price, then that price will override a discount based on a period or volume discount or a price list price.

Sometimes you want to give an even better deal to your favorite customers. In that case, you can use special prices for business partners.

You can base your discounts on any price list, or simply enter them manually.

You can define discounts by date range and quantities and units of measure.

Special prices defined for a business partner override all other prices except blanket agreements.

However, please note that the unit of measure defined in the special price must match the unit of measure specified in the row for the discount to apply.

Blanket Agreements (with the type Specific) allow you to negotiate items, quantities and prices with a business partner for a certain validity period. This negotiated price will override all other types of pricing in a marketing document.

You will notice that the four types of prices range from the most general "price lists" to the most specific "special prices for business partners".

When the system searches for a price, it looks for the most specific type of price first. So, that means it starts with the types of prices listed in the opposite order of how they have been introduced in this graphic.

The system starts looking for an applicable specific blanket agreement containing a price.

If there is no specific blanket agreement that applies, then it looks for a special price for that business partner.

If no special price exists for that business partner, it looks for discount groups.

If no discount group applies, it looks for period and volume discounts.

If no period and volume discount, it uses the price list assigned to the business partner to find the price.

The system also looks for pricing associated to the unit of measure used in the row.

Let us start by focusing on price lists, because they are the most basic way of pricing.

Managing multiple price lists allow you to provide flexibility in pricing.

For example, you want to offer customers that make regular purchases from you or who purchase large quantities a lower price than customers who only make occasional purchases or purchase small quantities of an item. Pricing could also be based on the size of a customer.

Price lists are not only used in sales, but like all of the pricing functionality, they are used in purchasing as well. Typically you will have one or more price lists set up to represent your vendors' prices for regularly purchased items.

Every item in your system is automatically linked to every price list. You can set an indicator in General Settings that removes items without prices from price lists.

When you look in an item master, you will see that you can view prices for multiple price lists directly in the item master. Only one price list will show at a time, but you can access each one and view the assigned price.

You can assign prices for the item in all but two of the price lists. Two of the default price lists are maintained by the system and cannot be maintained by users: Last Evaluated Price and Last Purchase Price.

However, even though it is possible, you may not wish to maintain pricing for the other price lists directly in the item master because this overrides automatic pricing in a price list.

When you create a business partner, a price list is assigned to each business partner. Price lists can default from the customer's customer group or from the assigned payment terms if no price list is assigned to the customer group.

A business partner is assigned to only one price list.

You can view and change the defaulted price list in the business partner master.

When you create a marketing document, the system brings in the price list associated with the business partner to the header of the document.

You can see the assigned price list in the Form Settings window for the document.

You can override the assigned price list in the document either by changing it directly in Form Settings or by changing the price list assigned in the payment terms in document's Accounting tab. If you change the payment terms, the system will prompt you to ask if you want to change the payment terms assigned to the business partner.

As you enter items in the document, the system proposes a price for each item based on the price list or any discounts or special prices you have defined.

There are two fields controlling pricing in the rows of marketing documents.

The Unit Price field and the Discount % field. These two work together to give you the total price for the row.

The system will look for a price and determine if any discounts are to be applied.

Since you can define several prices in the system for the same item, the system needs to use a certain logic to find the valid price, starting with the most specific price. The system uses the above list of priorities to find the valid price. Once it has found the price and any applicable discounts, it enters the results in the document.

The first place to look is in any specific blanket agreements for this customer. If there is a valid blanket agreement for this business partner and this item with a price, then the system will take that first.

If there is no valid blanket agreement, then the system will look for special prices for this business partner.

The business partner, item and unit of measure in the special prices for business partners must match those in the document.

If a price is found, it is entered in the document.

The special prices for business partner price can also have an associated discount percentage in addition to a price. If there is a discount percentage, that is also entered.

If no price exists in the special prices for business partners, then the system looks for a discount group associated with that business partner.

A discount group will have a discount percentage associated with it, but a discount group will not contain a price.

If there is a discount group, then the discount will be entered.

Even if a discount is found, the system will still continue to search further to find a price for the discount to apply to. The system looks first for a price in any period and volume discounts pricelist assigned to the customer. If one is found there the discount group discounts will apply to the period and volume pricelist price. If there is no valid period and volume record for that customer, then it will apply the discount group discount to the price in the customer's assigned price list.

The next place the system looks is for a period and volume discount.

The system looks to see if the item and unit of measure specified in the row match the period and volume discount for the pricelist.

If both an applicable discount group and a period and volume discount are found, the discount percentage is applied to the Discount field and the period and volume discount price is applied to the Unit Price field.

If no valid period and volume discount for this price list exists for this item and unit of measure, then it uses the basic price list assigned to the document to determine the unit price.

If a specific price exists for the unit of measure in the document, then that price will be used. However, the price list does not need to contain an entry for the specific unit of measure used in the document. A price will be automatically calculated for the item based on the relationships in the unit of measure group.

If there had been an applicable discount group but no period and volume discount, then the discount would be taken from the discount group and the unit price from the price list.

Since a document can contain prices not only from the price list, but also from other types of special pricing: period and volume discounts, discount groups and special prices for business partners, it is useful to be able to identify the source of the price.

The price source field provides information on the source of prices and discounts on the item row.

The field can contain one of the following values:

• Inactive Price list. This indicates that the price list for the business partner is inactive.
• Active Price List. This means that the price is taken from the business partner price list, with no discounts.
• Active Price List, Discount Groups. In this case, the discount is taken from the discount group and the price comes from price list.
• Special Prices for Business Partners. This means that the price is taken from the Special Prices for Business Partners window.
• Period and Volume Discount. This shows that the price is taken from the Period and Volume Discounts window.
• Period and Volume Discount, Discount Groups, the discount is taken from the Discount Group and the price is taken from the period and volume discount

This field can be especially useful to check if everything is working properly when you first set up pricing.

To view the price source field, set it as visible in Form Settings.

Many companies want to use the pricing hierarchy that searches for the most specific price first. In most cases, this will lead to the best price being chosen for the business partner.

However if a company is one that has a lot of "flash sales" that offer deep discounts for a short period of time, there may be situations where a customer with business partner specific pricing will not receive the best discount. If this is likely occurrence, you have the option to use a setting on the Business Partner Master Data - Payment Terms tab, that allows you to have the system search all the possible prices available and always choose the lowest price. This case is described in the example shown on this slide. The Effective Price field defaults to Default Priority, but you can switch it to Lowest Price or Highest Price.

When the Lowest Price/ Highest Price option is selected in the Effective Price field, the Effective Price Considers All Price Sources option becomes available.

To apply this definition for all business partners, select the Effective Price Considers All Price Sources checkbox on Administration - -> System Initialization - -> General Settings - -> Pricing tab.

Note! when the Default Priority is selected in the Effective Price field, the system uses the logic explained earlier to find the valid price, starting with the most specific price (blanket agreement).

We have been explaining basic pricing that calculates a net price. You also have the option to use gross prices.

In the Company Details window, you can choose the option to work with both Net and Gross Pricing. There is a checkbox Enable Separate Net and Gross Price Mode. This setting is irreversible.

Once you have enabled this setting, you can control which price lists and which business partners use gross pricing. All price lists have a field called Price Mode which allows you to set the pricelist either for Net or Gross pricing. This field is also in the Business Partner Master Data window on the Payment Terms tab.

When gross price is enabled for a business partner, the unit price field is disabled in documents. Instead the gross price column and gross price total columns are used. You can have gross prices with discounts in pricing.

Here are some key points:

• There are 5 types of pricing in SAP Business One: price lists, period and volume discounts, discount groups, special pricing for business partners and specific blanket agreement prices.
• When you create a marketing document, the system brings in the price list associated with the business partner to the header of the document. You can view the assigned price list in the Form Settings window.
• The system proposes a price for each item in the document. You can change the assigned price list in the document either by changing it directly or by choosing different payment terms. If you change the payment terms, the system will prompt you to ask if you want to change the price list or not.
• As you enter items in the document, the system proposes a price for each item based on the price list or any special prices you have defined. The system looks first for the most specific price and continues until it finds an applicable price. If a discount is found, then the discount must be applied to a price.
• The pricing hierarchy order is: specific blanket agreements, special prices for a business partner, discount groups, period and volume discounts based on the price list associated with the marketing document, and finally prices in the price list.
• The price source field shows the source of prices and discounts on the document row.
• You have the option to use the Effective Price setting on the Business Partner Master Data to have the system search all the possible prices available and always choose the lowest or highest price.
• There is an option to use gross pricing in addition to net pricing. Both pricelists and business partners can be set to use either gross pricing or net pricing.