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Cost-based pricing

In cost-based pricing, the list price is determined by adding a markup percentage to a product’s cost. The markup percentage may be standard for the industry or may be arbitrarily determined by the business owner. The advantage of this method is that it is straightforward, and it is relatively easy to justify the price of a product or service. The disadvantage is that it’s not always easy to estimate what the costs of a product will be, particularly for a start-up. Once a price is set, it is difficult to raise it, even if a company’s costs increase. In addition, cost-based pricing is based on what a company thinks it should receive rather than on what the market thinks a product or service is worth. It is becoming increasingly difficult fo....[1]


  

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