The cost-based pricing method is based on two key indicators: costs (for production, marketing, sales, etc.) and expected profit (marginal or gross). This model is described as “costs +”, where “plus” means a percentage markup to ensure the company’s benefit.
Cost-Based Pricing
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When forming the price, the following types of costs are taken into account:
Full . Includes all costs associated with the production of a specific batch of products, including taxes and other deductions.
Relevant costs : Change azerbaijan email list depending on management decisions.
Marginal (variable) . Additional costs for the production of a unit of goods, the size of which depends on the volume of output.
Standard costs . Include labor, material, and general production costs.
In large companies, the determination of expenses taken into account when forming a pricing strategy is most often performed by a marketer. In small and medium businesses, you can use the services of an outside specialist. Having received the necessary data, he will conduct an analysis and propose an optimal pricing strategy.
Can a company manager independently choose a cost-based policy? Of course, yes. But to effectively apply a cost-based strategy, he needs to know the basics of pricing, the principles of cost calculation.
With clear boundaries, the potential monetary value of a product can be determined by taking into account specific numerical parameters. The price of the finished product is determined by the formula:
Fixed costs + Variable costs + Markups = Cost of goods.
This approach promotes stability of product prices, eliminating their arbitrary formation.
The formula given, although approximate, is based on the full cost method and is subject to adjustment depending on the selected types of costs included in the calculation of the product cost.