Cost-Plus Pricing
Also called: cost plus pricing
What is Cost-Plus Pricing?
Cost-plus pricing sets the selling price by adding a fixed percentage to the cost of a product or service. It is the simplest pricing method there is, and the default in wholesale, contracting and much of retail.
Why Cost-Plus Pricing matters
Cost-plus guarantees a margin on every sale as long as the costs are accurate, which is exactly its weakness: it ignores what customers will pay and rewards inefficiency by passing higher costs straight through.
Cost-Plus Pricing formula
Price = Cost × (1 + markup %)
For a target margin instead, divide cost by one minus the margin.
How Cost-Plus Pricing works in practice
Use it as a floor rather than an answer. Compute the cost-plus price, then test it against competitors and against what the item is worth to the customer before printing the menu or the price list.
Frequently asked questions
It is safe rather than bad. It protects margin but leaves money on the table for anything customers value highly.