Cost Plus Pricing

Cost Plus Pricing
Rahim Hasan Mahmud

Rahim Hasan Mahmud

July 12 2023

2
391

Cost-plus pricing is an easy pricing strategy to implement and makes it easy to justify price increases. However, it does not take competitor prices into account so there is a risk of overpricing products. Automate this with the Dynamic Pricing tool now!

Cost-plus pricing, also known as markup pricing is a simple pricing strategy where a fixed percentage is added on top of production cost. The resulting number is the selling price of the product. This pricing strategy ignores external factors like consumer demand and competitors’ prices and is commonly used by retail stores to set prices.

Why should you do it on your store?

Firstly, this pricing strategy does not require extensive research is easy to implement. Simply analyse your production costs i.e. labour, materials, and overheads then determine a markup price.

Next, this pricing strategy makes it easy to justify to your customers whenever price increases are needed to be made. Most importantly, cost-plus pricing results in all costs being covered. As such, a consistent profit margins can be expected.

However, as this pricing strategy does not take competitor prices into account, there is a risk of pricing your products too high which could lead to a loss of sales to lower-priced competitors.

How to automate cost-plus pricing to your store?

  1. Install Konigle on your store.
  2. In the Konigle dashboard go to the Pricing power strategy, implement ‘Cost Plus Pricing’ tactic.
  3. Create pricing rules with the Dynamic Pricing tool.

Now you won't have to manually change prices when cost changes. How convenient!

Frequently asked questions

Example: A shoe seller wants to have a fixed profit margins of 15% for all shoes sold. The seller will have to first calculate the total cost incurred to produce 1 pair of shoe. Then, set the selling price of the shoe to be 15% more than calculated cost. In other words, the selling price will be 115% of cost.

Rahim Hasan Mahmud

Author

Rahim Hasan Mahmud

Mr Mahmud, is a pricing zealot,  studying customer behaviour and pricing strategies to provide insights and recommendations to help online stores optimize their pricing and increase profitability.