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Cost-plus Pricing

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Definition:

Cost-plus pricing, also called mark-up pricing is the practice by a company of determining the cost of their product to them and then adding a percentage on top of that price to determine the selling price to the customer.

Cost-plus pricing is a very simple pricing strategy and is usually used when a company has many products and many product lines. For example, if a company sells a product for $1.00, and that $1.00 includes all the costs that go into making and marketing the product, then it may add a percentage on top of that $1.00 as the "plus" part of cost-plus pricing. That portion of the price is their profit.

Depending on the company, the percentage of markup may also include some estimate of market or economic conditions. If demand is slow, then the mark-up percentage may be lower in order to lure in customers. On the other hand, if demand for the product is high and economic conditions are good, then the mark-up percentage may be higher as the company feels they can get the higher price for their product.

Also Known As: mark-up pricing, markup pricing
Examples:

XYZ, Inc. uses cost-plus pricing and marks their one product up by 20%.

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