Cost-based pricing:
In cost-based pricing, a company determines expenses from raw materials and labor, adds amounts or percentages for overhead and profit, and thereby arrives at the price. This method is widely used by industries such as utilities, contracting, wholesaling and advertising. The basic formula for cost-based pricing is
Price = Direct costs + Overhead costs + Profit margin
Direct costs involve materials and labor that are associated with the service, overhead costs are a share of fixed costs, and the profit margin is a percentage of full costs (direct + overhead)
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