Definition Cost-plus Pricing. Description.
Cost-plus Pricing is an accountants approach to pricing 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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The 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 leads to the view that prices change little with changes in output since mark-up remains constant. (sawyer, 1985)." |
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Cost-plus Pricing Special Interest Group
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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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Cost-plus Pricing Sponsor
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Special Interest Group Leader
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