Cost-plus Pricing

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What is Cost-plus Pricing? Meaning.

Cost-plus Pricing is an accountants approach to Price Setting that adds a standard mark-up to the total cost of the product. For this reason it is also called Mark-up Pricing. The mark-up could be a fixed monetary amount, but more frequently is a fixed percentage, a certain profit margin. This type of pricing can be frequently found in manufacturing and retailing environments and is sometimes also necessary to win government contracts. The method is internally orientated.

One benefit of this approach is its simplicity. Also it is fact-based, can be easily calculated and administered. A disadvantage is the risk of underestimating customer demand and the value as perceived by the customer as important mechanisms. This may result in overpricing and underpricing. Furthermore the role of competitors is ignored. Historical accounting costs are used rather than replacement value.

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🔥 NEW Disadvantages of Cost-plus Pricing Method
Cost-plus pricing is an easy method for applying a unit margin on a product. This makes it easy to calculate profit based on sales. But it does not take into account VOLUME. Full cost plus pricing ea...

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Understanding Costs In-depth

Cost Drivers, Cost Behavior, Direct Costs, Indirect Costs, Controllable Costs, Uncontrollable Costs
This presentation provides a better understanding about cost, cost types, costs drivers and other cost dynamics, and inc...

Overview of Pricing and Pricing Strategies

This presentation contains an overview of various pricing strategies, including for example pricing based on competition...

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Compare with: Standard Cost Pricing  |  Marginal Cost Pricing  |  Target Pricing  |  Penetration Pricing  |  Price Skimming  |  Perceived Value Pricing  |  Psychological Pricing  |  Promotional Pricing  |  Competitive Pricing  |  Discount Pricing

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