cost-plus pricing

Definition

One method used by businesses to determine how to price goods and services. This type of pricing includes the variable costs associated with the goods, as well as a portion of the fixed costs of operating the business. It is calculated as (average variable cost + % allocation of fixed costs)*(1+ markup %). For example, if a business sells a microwave that has a variable cost of $15.00, a fixed cost allocation of $5, and a desired markup of 30%, the price of the microwave using this method would be ($15 + $5)*(1+0.30), or $26.

Use cost-plus pricing in a sentence

We decided to use the cost-plus pricing method as there were many elements to consider that were both variable and fixed.

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Because we were a new business, we had to disregard our ideal cost-plus pricing in order to draw in new customers with big savings.

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When quoting jobs for the asphalt repair company where my husband works, they use a cost-plus pricing method by adding a 10% markup over the fixed costs and variable costs.

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