Customers and pricing
Cost-plus pricing
Price = cost plus a fixed markup.
Facts checked against sources onWhat does Cost-plus pricing mean?
Cost-plus pricing adds a set markup to the cost of a product. It is simple and ensures each sale covers its cost, but it ignores what customers are willing to pay and what competitors charge, so it can charge less than customers would pay, or price the product out of the market.
Where does it come up in case interview prep?
Related terms
- MarkupHow much you add on top of cost to set the price.
- Value-based pricingSetting the price from what the product is worth to the customer.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
- ARPU (average revenue per user)Revenue divided by the average number of users.
Learn it in context
See Cost-plus pricing at work in a lesson from Customers and growth: the economics of marketing, with checks as you go.
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