Definition of Cost-based Pricing
It analyzes the price it takes to sell an item and adds on a bit to ensure the item is profitable.
Description of Cost-based Pricing
This pricing strategy comes with a base cost that is evaluated by a floor price that cannot be lowered in order to remain profitable. The ceiling price, on the other hand, is the most that an item can be priced in order to remain competitive.
Advantages of Cost-based Pricing
If, for instance, a company can produce an item for cheaper than their rivals, their price of the item is lower, thus allowing them to sell more. They could potentially price it higher, too but there’s a change that shoppers will find something close to it for a cheaper price. It also typically works best for bigger businesses.
Disadvantages of Cost-based Pricing
This strategy doesn’t allow you to be productive. For instance, if an employee finds the solution to an issue quickly, they’ll be paid less than if it took them a longer period of time.