Cost Plus Pricing
Definition of Cost Plus Pricing
This is a cost-based strategy used to set the price for items and services based on the sum of the cost of the material, work, as well as the overhead ones along with the markup percentage.
Description of Cost Plus Pricing
This is a great method when you are in need of a contractor because they won’t be risking anything. The price is easily derived from adding all of the costs and multiplying the markup to that sum. So, for instance, if your materials cost $10, work costs $2.50, the overhead cost is $5, and the markup is 20%, multiply the costs by the markup plus 1, and you get $21.00.
Advantages of Cost Plus Pricing
It’s quite simple to figure out the price with the easy to follow formula. Also, contractors are all for this strategy because of the reassurance that the expenses will be paid for since a profit is always made. Additionally, it’s easy to explain to customers where the raise in the price comes from.
Disadvantages of Cost Plus Pricing
Your rivals aren’t taken into account, which greatly influences your market share and the revenue that you’re planning on making since they typically either price way too high or low. In addition, your items tend to be focused on what you want to make versus what consumers want.