Cost Analysis and Pricing Decision

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Cost analysis is the technique to evaluate cost-plus pricing in which customers care about the price they have to pay for products and services and the value they receive for that price. If the entrepreneur uses the cost-plus pricing approach: The price is set too high and the customer does not buy the price is set too low and returns less profit.

Pricing Decision is calculated as R – C = P (revenue minus cost equals profit). Setting price for products and services is a critical factor in the success of a venture. “Right price” is one that is neither too high nor too low. One of the most straightforward business truths, yet one of the more difficult for the new entrepreneur to understand, is the marketplace sets price. Competitor pricing strategy is an overriding consideration in setting price.

Cost-plus pricing”: New entrepreneurs often set the price of their products or services by adding up all the costs involved in bringing the product or service to market and then adding a specific amount for profit.

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