Cost-plus pricing
Cost-plus pricing is a pricing strategy. The selling price of a product is the price at which it was bought, plus a certain desired rate of return.[1][2] An alternative pricing method is value-based pricing.[3]
Cost-plus pricing has often been used for government contracts. It has been criticized because it reduces the incentive for suppliers to control direct, indirect and fixed costs
Companies using this strategy need to record their costs in detail to ensure they have a good understanding of their overall costs.[2] This information is necessary to generate accurate cost estimates.
Cost-plus pricing is very common for utilities and products that are manufactured to the buyer's specification, such as for military procurement.
Cost-plus Pricing Media
Fig 1: Cost-plus pricing steps
References
- ↑ Kenton, Will. "How Variable Cost-Plus Pricing Works". Investopedia. Retrieved 2021-04-26.
- ↑ 2.0 2.1 Carlson, Rosemary. "Defining and Calculating Cost-Plus Pricing". The Balance Small Business. Retrieved 2021-04-26.
- ↑ Jain, Sudhir (2006). Managerial Economics. Pearson Education. ISBN 978-81-7758-386-1.