cost-plus pricing

USAGE SUMMARY

The phrase "cost-plus pricing" is correct and usable in written English.
It is typically used in business and economics to describe a pricing strategy where a fixed percentage is added to the cost of producing a product to determine its selling price. Example: "The company decided to implement cost-plus pricing to ensure that all production costs were covered while still making a profit."

✓ Grammatically correct

Formal & Business

News & Media

Science

Academia

Wiki

Human-verified examples from authoritative sources

Exact Expressions

16 human-written examples

Is anyone able to tell me the difference between Markup pricing and Cost-Plus pricing?

Massachusetts Institute of Technology

With real cost-plus pricing, profitability could be uniform across customers despite wide variations in both costs and prices.

Harvard Business Review

Since carriage trade customers value the supplier's extra services, a cost-plus pricing policy may be appropriate for them.

Harvard Business Review

Cost should play a role in new product pricing quite different from that in traditional cost-plus pricing.

Harvard Business Review

It might be an answer to the growing need of performing value-based pricing of devices replacing currently dominating cost-plus pricing approach.

Technological Forecasting and Social Change

Schneider-Electric did a major overhaul of its sales organization and trained its people to switch from cost-plus pricing to value-based pricing.

Harvard Business Review

Human-verified similar examples from authoritative sources

Similar Expressions

44 human-written examples

"Having already invested over $400m in research and development costs, this concessional, cost-plus price agreed upon with the GDF ensures Otsuka is able to sustain the manufacturing costs of delamanid and continue its viable research and development programme in tuberculosis," said Marc Destito, communications director at Otsuka.

The Guardian

Conventional cost management and cost plus pricing strategies are not very effective in this new environment.

Journal of Accounting Education

Where upstream component manufacturing activities are seen as cost centers with cost-plus transfer pricing, additional investment in the core activity may seem a less profitable use of capital than investment in downstream activities.

Harvard Business Review

Newport News was unique among these in refusing any fixed monetary value in favor of a "cost-plus %" price, but this led to the rejection of their bid out of hand.

Wikipedia

Also, instead of trying to fight ever-rising costs of health care and getting a bad rap from consumers, HMOs are focusing on two things: 1) exercising tremendous buying power by extracting lower prices from health care providers and 2) embracing the inflation in medical costs by taking a cost-plus approach to pricing; in other words, passing medical inflation on to consumers.

Forbes

Expert writing Tips

Best practice

When using "cost-plus pricing", clearly define all cost components included in the base cost to ensure transparency with customers.

Common error

Avoid underestimating or overlooking indirect costs when calculating the base cost for "cost-plus pricing", as this can lead to reduced profitability or losses.

Linguistic Context

The phrase "cost-plus pricing" functions as a noun phrase describing a pricing strategy. Ludwig indicates it's a recognized term. It is frequently used in the context of business and economics to refer to a method of setting prices.

Expression frequency: Uncommon

Frequent in

News & Media

30%

Formal & Business

30%

Science

20%

Less common in

Academia

10%

Wiki

10%

Reference

0%

Ludwig's WRAP-UP

The phrase "cost-plus pricing" is a grammatically sound and recognized term in business and economics, used to describe a pricing strategy where a markup is added to the production cost. As Ludwig highlights, this approach ensures coverage of production costs while securing a profit. While effective, it's crucial to accurately assess costs and consider market dynamics for optimal application. Alternatives such as "markup pricing" or "value-based pricing" may be more suitable in certain contexts. Understanding the nuances of "cost-plus pricing" and its alternatives is essential for effective pricing strategies. Its usage is more common in News & Media and Formal & Business settings.

More alternative expressions

Phrases that express similar concepts, ordered by semantic similarity:

markup pricing

Uses a percentage of cost as a profit margin, closely related but focuses on the markup itself.

cost-based pricing

A broader term emphasizing that the price is derived from the cost, not necessarily with a fixed plus.

cost-plus contract

Refers to the contractual agreement based on cost plus a fee, narrower application than general pricing strategy.

rate-of-return pricing

Sets prices to achieve a specific rate of return on investment, related to cost but with an investment focus.

margin pricing

Focuses on setting prices to achieve a desired profit margin, similar outcome but different emphasis.

value-based pricing

Prices based on the perceived value to the customer, contrasting approach to cost-based methods.

premium pricing

Charging a high price for a perceived value, contrasting as it's not strictly cost-based.

target pricing

Involves determining what price customers are willing to pay and designing the product to meet that cost, an indirect relationship to cost.

competitive pricing

Setting prices based on competitors, not necessarily on cost.

absorption pricing

A method where all manufacturing costs are included in the price, closely cost-related but not always a fixed plus.

FAQs

How does "cost-plus pricing" differ from value-based pricing?

"Cost-plus pricing" calculates prices based on production costs plus a markup, while value-based pricing sets prices based on the perceived value to the customer. "Value-based pricing" focuses on customer willingness to pay, potentially leading to higher profit margins if the perceived value is high.

What are some alternatives to "cost-plus pricing"?

Instead of "cost-plus pricing", you can use "markup pricing", "value-based pricing", or "competitive pricing", depending on your business goals and market conditions.

Is "cost-plus pricing" always the best strategy?

No, "cost-plus pricing" may not be optimal in highly competitive markets where customers are price-sensitive. It can also be less effective if your costs are higher than those of your competitors. In such cases, consider "competitive pricing" or "value-based pricing".

How to use "cost-plus pricing" in a sentence?

You can say: "The company uses a "cost-plus pricing" model to determine the selling price of its products.", or "Under the "cost-plus pricing" agreement, the customer pays the production costs plus a fixed percentage as profit."