Cost plus pricing is also known as mar up pricing. This method applies at the unit cost and ignores the price which is set by the customers. Also the resulting number is the selling price of the product. If you produce certain goods and services, setting prices for your products can be relatively tough and hard and also confusing at times. When you set too high prices, it will cause a drastic fall in the sales of the product.
This method of cost plus pricing is commonly used by the retail companies like departmental stores and grocery stores. But for a software business this pricing method isn’t the best fit. If you are a business beginner, it is necessary for you to take help of various pricing strategy guides which will help you in pricing of your products and services.
When you decide the price for your product, it is important to consider all the business factors like revenue goals, marketing objectives, target audience, brand positioning and also product attributes. You should also consider the external factors which can also influence like competitor pricing, consumer demand and overall market and economic trends.
Price elasticity of demand is a very important strategy which is used to determine the price. It explains how the change in price determines the change in consumer demand. This will also help you in understanding whether your product or service is sensitive to the price fluctuations. It will also let the demands remain stable even if the prices fluctuate.
This method is one of the simplest way of calculating the price of the product. It doesn’t require extensive research too. You just need to analyse your business and decide a mark-up price. Also it is very easy to communicate to the customers when the prices are changed.
Under cost plus pricing, the price of the product or service can be set too high. This marks a disadvantage of this pricing strategy. Under this strategy no competitor prices are taken into consideration and it can also lead to a large loss to the business. This could also result in loss of sales.
With the help of cost plus pricing strategy, the mark-up of the product can be easily done to determine its selling price. At the end of the day, the businessman should look onto it that whether the pricing strategy suits his business or not. The business should profit as well.