#778 Cost Plus Pricing

What is the Right Price for My Product? This is one of the most common questions business owners must answer. Defining your pricing strategy is critical to your success because it tells prospective customers a lot about your business, helping them place you in relationship to other companies in the market. So how do you come up with that price? There are many different approaches to pricing. Some are easier to implement and manage than others, and some are more appropriate for specific types of businesses. Let’s take a look at some of those alternatives to help you select the right pricing strategy for your business. Cost Plus Pricing Strategy The is the simplest approach and very common in construction and contracting industries. Essentially you start with what it cost you to build or to provide a service. Then you simply add your profit margin on top of that number. The “cost plus” your profit margin. If something costs $100 to build and you want to make $25, you sell it for $125. While the cost plus approach will guarantee a profit, it doesn’t mean you’re pricing your product or service appropriately. Maybe your cost plus analysis results in a price of $125, but people are willing to pay $200 or $300 because of the value. In this case you are leaving money on the table.