Pricing methods

Need to know

What you need to know

• Price is calculated by: Total Unit Cost + (% Mark-up * Total Unit Cost).
• Guarantees a profit margin on every unit sold, assuming the cost calculations are accurate.
• Ignores demand elasticity and the prices of competitors, which can lead to uncompetitive pricing.
• Most effective for businesses with predictable costs and little competition, or for 'price-maker' firms.

Explanation

Pricing methods

1. Price is calculated by: Total Unit Cost + (% Mark-up * Total Unit Cost).
2. Guarantees a profit margin on every unit sold, assuming the cost calculations are accurate.
3. Ignores demand elasticity and the prices of competitors, which can lead to uncompetitive pricing.
4. Most effective for businesses with predictable costs and little competition, or for 'price-maker' firms.