Revenue
Cost-Plus Pricing
Definition of
Cost-plus pricing is a pricing strategy in which a company sets the price of its product or service by adding a markup to the cost of production. This markup typically covers overhead costs and allows for a profit margin. The cost-plus pricing method ensures that the company is able to cover its expenses and make a profit on each sale. For example, if a company produces a product for $100 and adds a 20% markup, the price of the product would be $120. Cost-plus pricing is commonly used in manufacturing and construction industries where direct costs are easily identifiable. While cost-plus pricing is a straightforward approach, it may not always be the most effective pricing strategy for businesses. It may not account for market demand or competitor pricing, and could potentially lead to overpricing or underpricing of products.
