Cost-based pricing is price setting based on the actual cost of producing the product or services, including all aspects from production to marketing and distribution. In order to set a price after calculating the cost, businesses will tend to choose one of two strategies: cost-plus pricing (also known as markup pricing) or break-even pricing.
To know more, you can head over to our pricing strategy guide where we took an in-depth explanation approach.
Cost-based pricing is one of the most simple strategies and one of the easier ones to start with. Nonetheless, it brings a lot of advantages. You can implement it in the following use cases.
These companies use cost-based pricing to determine the price for their products by adding up the resource and manufacturing costs. After that, they can figure out how much they need to make to break even per week, month or year. After determining the desired return in percentages they can add this percentage as a markup to their cost price.
These B2C companies use a cost-based pricing strategy to determine the final price for customers. E.g. when you buy a ticket for a holiday on a tropical beach, most often you pay for the ticket plus extra money for additional services such as luggage, or larger seats. These add-ons cost more and are thus passed on to the customer plus an additional markup.
The cost-based strategy is one of the simplest pricing strategies to calculate and implement. Even if you have a simple price management tool it can be applied. However, if you want to bring your pricing to the next level you may need to utilise a smart price solution such as SYMSON, which enables you to make multiple strategies and automate your pricing. We recommend the following steps in order to maximise your pricing potential: