Cost-Plus Pricing
What is cost-plus pricing? It is a price that includes your costs plus a fixed percentage (15 percent or 50 percent whatever your target is) for profits. Example: You need to price a new product that costs you $85 for materials. You estimate it also needs to cover $15 of your overhead. So your total costs are $100. You want to make 15 percent profit, so you price this product at $115
sounds great, t? You cover your costs. You get a guaranteed 15 perce t profit. What could be better?
Actually, almost any other pricing strategy is better. Cost-plus pricing should be used only when you sell custom products. If you build custom houses, then you need to use cost-plus pricing. Us ng this strategy for any other situation is throwing away money.