How we change what others think, feel, believe and do

Transfer Pricing

Disciplines > Marketing > Pricing > Transfer Pricing

Description | Example | Discussion | See also

Description

Transfer pricing is the price you set when 'selling' within your company or organization. Funds are typically transferred from one budget to another when this happens.

Transfer price can be for physical products. It can also be for internal services.

Example

A paper company uses its own paper internally. A transfer price that at least covers cost price is

The IT department in an organization sets service charges for such as setting up a PC and for removing viruses. In this way it funds its whole operation from these internal charges.

Discussion

Money from transfer sales is sometimes called 'wooden dollars' as it is does not represent real income for the company, although it may save expense from having to buy externally.

Transfer pricing recognizes the actual cost of items and discourages people from using internal products and services without consideration of the real cost to the organization.

A danger of transfer pricing is that 'customers' may look for cheaper alternatives elsewhere or just do it themselves, possibly in a way that is inefficient (using their own expensive time), hazardous or against policy, regulatory rules or laws.

See also

Market Pricing