What is Cost Plus Pricing Strategy?

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What is meaning of Cost Plus Pricing Strategy

There are many different pricing strategies that different companies follow to set trade price as well as selling prices for their products/services.

Today we discuss one of such pricing strategies which is adopted by some companies to set prices for their products/services.

This pricing strategy is referred to as Cost Plus Pricing strategy.

A cost plus manufacturing strategy is, where price of any product is decided on basis of manufacturing cost+ expenses to sell+ taxes, if any+ profit margin.

The final price arrived at through this method is then kept in line with competition.


                                            Image: super heuristics

So if a product’s manufacturing costs = ₹10/-per px

Selling cost or selling cost (Including sales staff salary+ 

transportation cost+ distribution cost+ admin cost) = ₹2/-per PC.

Tax 10%= ₹(10+2)x10%= ₹ 1.20

Total cost = ₹10+₹2/-+₹1.2= ₹13.20.

If the same product has been priced ₹20/- then the company fixes its price to ₹20/-.

This is cost base pricing. Under this pricing strategy the manufacturer ensures that on each unit sales S/he earns profit.

This pricing strategy thought looks good on paper from the entrepreneur's or manufacturer's point of view, but it lacks taking in to account the pricing strategies of competitors. 

While pricing the products the market scenarios and customer willingness to pay must be taken into account. 

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Happy Living !

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