Cost-plus pricing is a common approach to pricing used by many B2B businesses. It's simple really - in order to reach your cost-plus price you figure out all the costs of production or manufacture, set a desired margin for each unit and add that margin onto your cost. Hey presto, you have your price!
Typically - if you are offering a product that provides more value than the competing alternative, customers will choose your offering. If your offer provides less value than its competing alternative, customers look elsewhere.
Pricing is one of the four elements of the marketing mix, along with product, place and promotion. An effective pricing strategy is vital for companies who wish to achieve success by finding the price point where they can maximize sales and profits. Companies may use a variety of pricing strategies, depending on their own unique marketing goals and objectives – and also on which industry they represent.
Costs (direct or indirect) are the expenses that a business incurs in bringing a product or service to market. The selling price is the amount a customer pays for that product or service. The difference between the price that is paid and the cost that is incurred is the profit the business makes when the item sells. If a customer pays £10 for an item that costs the company £5 to produce and sell, the company makes a £5 profit.