Editing Cost-plus pricing (section)

{{Short description|Strategy of setting prices based on a fixed markup percentage}}
'''Cost-plus pricing''' is a [[pricing strategies|pricing strategy]] by which the selling price of a product is determined by adding a specific fixed percentage (a "[[markup (business)|markup]]") to the product's [[unit cost]]. Essentially, the markup percentage is a method of generating a particular desired rate of return.<ref name=":1">{{Cite web|last=Kenton|first=Will|title=How Variable Cost-Plus Pricing Works|url=https://www.investopedia.com/terms/v/variable-cost-plus-pricing.asp|access-date=2021-04-26|website=Investopedia|language=en}}</ref><ref name=":0">{{Cite web|last=Carlson|first=Rosemary|title=Defining and Calculating Cost-Plus Pricing|url=https://www.thebalancesmb.com/cost-plus-pricing-393274|access-date=2021-04-26|website=The Balance Small Business|language=en}}</ref> An alternative pricing method is [[value-based pricing]].<ref name="SudhirJain_ME_2009">{{cite book | last=Jain | first=Sudhir | title=Managerial Economics | year=2006 | publisher= Pearson Education | isbn=978-81-7758-386-1}}</ref>  

Cost-plus pricing has often been used for [[government contracts]] ([[cost-plus contract]]s), and has been criticized for reducing incentive for suppliers to control [[direct cost]]s, [[indirect cost]]s and [[fixed cost]]s whether related to the production and sale of the product or service or not. 

Companies using this strategy need to record their costs in detail to ensure they have a comprehensive understanding of their overall costs.<ref name=":0" /> This information is necessary to generate accurate cost estimates.

Cost-plus pricing is especially common for utilities and single-buyer products that are manufactured to the buyer's specification, such as for military procurement.