cost-plus pricing

Cost-plus pricing, also called markup pricing, is referred to as instrument for determining the selling price.

Thereby, transfer prices are calculated on the basis of all variable unit costs incurred and a fixed profit mark-up. A margin is predefined to ensure the targeted profitability. Due to its simple and comprehensible practicability, cost-plus pricing is still very common in practice. However, it should be critically noted that this type of pricing completely disregards the customer and his benefits, and that the calculated price can therefore be far from the customer’s actual willingness to pay. In contrast to the approach of target costing, where target costs are determined, cost-plus pricing specifies a target profitability.

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