You might be a simple business or a business that provides services. When is Cost Plus Pricing the right approach to take?Ĭost Plus Pricing is good for certain situations. When costs overrun it directly impacts profit.It doesn’t factor competitors into the price points.It doesn’t factor customers into the price points. It doesn’t cultivate a culture of innovation or cost analysis.It is very inward looking so susceptible to external risks.You could be giving a lot of value away.Your costs will keep changing so your pricing will need to follow.The disadvantages of the Cost Plus Pricing strategy include: What are the disadvantages of Cost Plus Pricing? Simple justification for price increases should you need to communicate that to your customers.Easy to increase prices if costs go up or unaccounted for costs occur.Guaranteed profit per unit item or service delivered as all costs are being covered.No requirement for research into the rest of the market, your competitors or even your customers.The advantages of adopting a Cost Plus Pricing strategy include: What are the advantages to Cost Plus Pricing? It is your cost with your desired mark-up applied to give your price point. This pricing strategy is all about taking a number and adding a fixed mark-up. What is Cost Plus Pricing also known as?Ĭost Plus Pricing is sometimes referred to as Mark-up Pricing, and it’s clear to see why. Just look though your invoices and overheads and you’ll find your total cost per unit. This is the only research you’ll need to do for Cost Plus Pricing, and it’s all internal and easily to hand. Consider your cost of sale, not just production costs. So think about everything it takes to get your product made and in the hands of customers. For example, if you were to base your pricing solely on the manufacturing fixed costs of a product and not take into account marketing or operations, you may end up making a loss. You should factor in total cost to the business when looking at Cost Plus, in order to ensure you make a profit. Working out your true cost per unit or service may be a bit more complicated. How do I set my pricing using Cost Plus Pricing?ĭon’t worry, it couldn’t be easier! The formula to set your Cost Plus Pricing is as follows: Your price would then be 110% of your cost. For example, you may decide you want to sell pies for 10% more than the ingredients cost to make them. Is it right for you? Let’s read on and find out more…Ĭost Plus Pricing is a very simple pricing strategy where you decide how much extra you will charge for an item over the cost. Adopting a Cost Plus approach is the easiest way to cost your products and services but has a number of drawbacks compared to the alternatives. Here we’ll look at Cost Plus, probably the simplest of the strategies. Those three strategies are Competitive Based Pricing, Value Based Pricing and Cost Plus Pricing method. With that in mind, in this article we’ll look at one of the three possible pricing strategies typically adopted by businesses. It’s important to do your homework first and understand all the possible pricing options so you can make an informed decision about what would be best for your business. Getting your pricing right is famously one of the hardest aspects of any business strategy… but it can also make the biggest impact on your profit. This guide will help you understand the nuances of cost plus pricing and how to implement it in your business. What are the tools used when setting Cost Plus Pricing?.What are the alternatives to Cost Plus Pricing?.What is an example of Cost Plus Pricing?.How does Cost Plus Pricing affect supplier behaviour?.When is Cost Plus Pricing the wrong approach to take?.When is Cost Plus Pricing the right approach to take?.What are the disadvantages of Cost Plus Pricing?.What are the advantages to Cost Plus Pricing?.What is Cost Plus Pricing also known as?.How do I set my pricing using Cost Plus Pricing?.
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