Cost-plus pricing

Cost-plus pricing is a pricing strategy. The selling price of a product is the price at which it was bought, plus a certain desired rate of return. An alternative pricing method is value-based pricing.

Cost-plus pricing has often been used for government contracts. It has been criticized because it reduces the incentive for suppliers to control direct, indirect and fixed costs

Companies using this strategy need to record their costs in detail to ensure they have a good understanding of their overall costs. This information is necessary to generate accurate cost estimates.

Cost-plus pricing is very common for utilities and  products that are manufactured to the buyer's specification, such as for military procurement.

References

Category:Commerce