pricing strategy target price or cost plus price
Cost-Plus Pricing. Cost-plus pricing is the simplest and most intuitive method of setting a price. A business adds up the total cost of producing an item, tacks on a markup for its profit, and the result is the selling price. For example, assume your business makes shoes. Each pair requires $10 worth of materials, two hours' worth of labor at $12.50 an hour, and $5 in fixed costs such as rent and utilities. The cost of producing each pair is $40. If your business' policy is to mark up items 25 percent over cost, you'd set the price at $50.