Demand is one side of the pricing equation; supply is the other side. Since revenue must cover cost for the firm to make a profit, many companies start with cost to determine price. That is, they calculate product cost and add the desired profit. The mechanics of this approach are straightforward. Usually, there is some cost base and a markup. The markup is a percentage applied to base cost; it includes desired profit and any costs not included in the base cost. Companies that bid for jobs routinely base bid price on cost. Cornerstone 18.1 shows the how and why of calculating a markup on cost.