pricechecker

Blog - Pricing Strategies & Models - 9 December 2020

Cost Plus Pricing – Definition And Ideas To Maximise Profits

People often question how they can implement cost-plus pricing in their business. Typical questions are: Is it profitable to use a cost-plus pricing strategy in my business? What would be the problems that I’ll have to face while implementing this strategy? So, here I am with the answer to all your questions. What is cost-plus […]

People often question how they can implement cost-plus pricing in their business. Typical questions are:

  • Is it profitable to use a cost-plus pricing strategy in my business?
  • What would be the problems that I’ll have to face while implementing this strategy?

So, here I am with the answer to all your questions.

What is cost-plus pricing?

Cost-plus pricing is a strategy in which you can determine the price of your product simply by adding a mark-up to the total cost of your product.

There is a simple formula for it:

(Material Cost + Labour Cost + Overhead Cost) x (1 + Mark-up) = Price

All the costs that you incur to operate a business are called Overhead Costs. You can categorise your overhead costs into three broad categories:

  • Fixed Overhead costs like property tax, web hosting, business insurance, etc.
  • Variable Overhead costs like electricity, staff events, water, etc.
  • Semi-variable costs like staff bonuses, traditional bookkeepers, janitorial services, etc..

The amount of profit you want to earn would determine the mark-up that you can apply in this formula.

For example:

You want to sell speakers, and according to your targets, you want to keep 20% as profit on each unit of the speaker.

Let’s assume that your overall costs make up £60.

So, you can easily determine the price of your speaker as follows:

£60 x (1 + 0.20) = £72

Should I use cost-plus pricing?

Regular and conventional fashion brands use this pricing to cover their costs without compromising their profits and sales margins.

However, cost-plus might not be considered an effective pricing strategy nowadays as there are many customers out there who scroll through various websites to look for the best deal.

Understanding how cost-plus pricing might affect your business is an important aspect.

Let’s suppose that an electronics retail store added a mark-up of 50% to its cost without considering the prices of its competitors.

She was offering an RO purifier at £649 while her competitor was offering the same RO purifier with the same features for £549.

If you were the customer, what would you have preferred?

So, it is really important to understand the benefits and limitations of any strategy that you are considering to implement in your business.

Maximising profits with cost-plus pricing:

Despite the fact that cost-plus pricing might affect your business, we can maximise the output from this strategy, if we merge it with other business strategies.

Using a software program like Smartfeed could be a great option to consider so that you can evaluate the prices of competitors while taking care of your own costs as well.

Cost-plus pricing would work great when used thoughtfully as a part of a dynamic pricing strategy.

Conclusion:

All in all, cost-plus pricing enables you to easily and conveniently determine the price of your product by adding a target mark-up with the overall costs incurred to produce each unit.

It is an easy and quick method to determine the price of a lot of products in one go, but it has many limitations that can be overcome by merging it with other pricing strategies.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1. What are the benefits of cost-plus pricing?

Cost-plus pricing would provide the following benefits:

  • Ease
  • Doesn’t cost anything
  • Time-efficient
  • Covers all costs

Q2. What are the downsides of cost-plus pricing?

  • Ignorance of competitor prices
  • Neglecting product value
  • Fixed price- does not allow you to test sales at different prices
  • Ineffective in long-term
  • Drives businesses to lower their costs to earn more profit.

Popular

No recent posts available.

Recent posts

Related posts

What Are The Advantages Of Competitive Pricing? Find How Pricechecker Can Help Your Business

02 Jun 2021

What Are The Advantages Of Competitive Pricing? Find How Pricechecker Can Help Your Business
Pricing Strategies & Models
Price Skimming- Your Business Guide

08 Sep 2020

Price Skimming- Your Business Guide
Pricing Strategies & Models
PRIVACY POLICY

Welcome to Pricechecker! At Moonbow Media Limited , your privacy is our priority. This Privacy Policy explains how we collect, use, and protect your personal information when you visit and use our website. By using our site, you agree to the practices outlined in this policy.

Information We Collect

Personal Information

When you use our website, we may collect personal information that you voluntarily provide to us, such as:

  • Name
  • Email Address
  • Phone Number
  • Account Information (if applicable)
Non-Personal Information

We also collect non-personal information that does not identify you individually, including:

  • Browser Type
  • Operating System
  • IP Address
  • Referring URLs
  • Pages Visited
  • Date and Time of Access
How We Use Your Information

We use the information we collect to:

Provide and Improve Our Services: To deliver the features and functionality of our website and enhance user experience.

Communicate with You: To respond to your inquiries, send updates, and provide customer support.

Analyze Usage: To understand how users interact with our site, allowing us to make data-driven improvements.

Personalize Content: To tailor content and recommendations to your preferences and interests.

Compliance: To comply with legal obligations and enforce our terms and conditions.

Cookies and Tracking Technologies

We use cookies and similar tracking technologies to enhance your browsing experience. Cookies are small files stored on your device that help us remember your preferences and track site usage. You can manage your cookie preferences through your browser settings.

Data Sharing and Disclosure

We do not sell, trade, or otherwise transfer your personal information to outside parties, except in the following circumstances:

  • With Your Consent: We may share information if you have given us explicit permission.
  • Service Providers: We may engage third-party service providers to perform functions on our behalf, such as website hosting and data analysis. These providers are contractually obligated to protect your information and use it only for the intended purposes.
  • Legal Requirements: We may disclose your information to comply with legal obligations, enforce our terms, or protect the rights, property, or safety of PriceChecker.ai, our users, or others.
Security

We implement appropriate technical and organizational measures to protect your personal information from unauthorized access, alteration, disclosure, or destruction. However, no method of transmission over the internet or electronic storage is completely secure, so we cannot guarantee absolute security.

Your Choices

You have the right to:

  • Access and Update: Review and update your personal information by contacting us.
  • Opt-Out: Unsubscribe from promotional emails or adjust your cookie settings.
  • Delete: Request the deletion of your personal information, subject to applicable laws and regulations.
Children's Privacy

PriceChecker.ai is not intended for children under the age of 13. We do not knowingly collect personal information from children. If you are a parent or guardian and believe that your child has provided us with personal information, please contact us so we can take appropriate action.

Changes to This Privacy Policy

We may update this Privacy Policy from time to time. We will notify you of any significant changes by posting the new policy on our website. We encourage you to review this policy periodically to stay informed about how we are protecting your information.

Contact Us

If you have any questions or concerns about this Privacy Policy or our data practices, please contact us at:

Email: [email protected]
Address: Moonbow Media Limited, 10 Copperhouse Court, Caldecotte, Milton Keynes, MK78NL

Thank you for choosing Pricechecker… Your trust and privacy are important to us.