![]() ![]() The major drawback of cost-plus pricing is that the customer is not taken into consideration. Analyzing their value and prices becomes a more worthwhile exercise. Ignore that 80% of your inventory and instead look to the value of the 20% that really contributes to the bottom line, which may be items like power tools or air compressors. It would not be an effective use of your time to analyze the value to the consumer of each nut, bolt and washer. Let’s say you own a hardware store offering a large number of items. Retailers, manufacturers, restaurants, distributors and other intermediaries often find cost-plus pricing to be a simple, time-saving way to price. This strategy brings together all the contributing costs for the unit to be sold, with a fixed percentage added onto the subtotal.ĭolansky points to the simplicity of cost-plus pricing: “You make one decision: How big do I want this margin to be?” The advantages and disadvantages of cost-plus pricing Many businesspeople and consumers think that cost-plus pricing, or mark-up pricing, is the only way to price. ![]() To choose the right price within your customer’s acceptable range, consider the main factors that affect price:Ĭhoosing the right pricing strategy 1. Price floor and price ceiling Enlarge the image Above this price, you lose the sale because the customer feels that your price exceeds the value he or she gets from your offer.īetween the floor and ceiling sits a price your customer will find acceptable. The ceiling, or highest price, is the number at which your customer values your offer. In the chart below, the floor of your pricing is your total costs for what you’re selling. Your customer needs to find that your price falls within their range of what’s acceptable, and your ability to price is constrained by your costs. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund ![]()
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