Suppose you started a retail clothing line and you need to calculate the selling price of jeans. Here are the costs of producing a pair of jeans:
The total cost amounts to $55.00. With a 50% profit controlling directors email list margin, the formula would look like this:
This gives you a selling price of $82.50 per pair of jeans.
Advantages and disadvantages of a cost-plus pricing strategy
If you are considering using a cost-plus pricing strategy, you will want to weigh the pros and cons. Here are some of the key points to examine.
Advantages
It is easy to use.
Using a cost-plus pricing strategy doesn't require extensive research. Instead, you just need to analyze your production costs (e.g., labor, materials, and overhead) and determine a markup price.
The price may be justified.
A cost-plus pricing strategy makes it easier to communicate to consumers why price changes are being made. For example, if a company needs to increase the selling price of its product due to increased production costs, the increase may be justified.
Provides a constant rate of return.
When calculated correctly, cost-plus pricing should result in all costs being covered. And you should expect a consistent rate of return due to the margin percentage.
