Browse Definitions :
Definition

cost-plus pricing

Contributor(s): Matthew Haughn

Cost-plus pricing is a pricing model in which the price charged for a product or service is equal to its cost of production plus a specific mark up. The model is often used to determine negotiated prices for managed services provider (MSP) or IT procurement contracts.

Government contract pricing is often done on a cost-plus model. However, the use of cost-plus pricing has been criticized in government tendering as it eliminates the motivation of suppliers to control direct, indirect and fixed costs.

Consumers may see cost-plus pricing as a fair and agreeable method of pricing as compared to the sometimes predatory nature of value-based pricing. In some cases, the markup is an amount that has been previously agreed-upon by the buyer and the seller.

Accurate estimation of all costs involved and transparency are essential to make cost-plus pricing both profitable and fair. To calculate cost-plus pricing, one takes the cost and multiplies it by the agreed-upon rate or desired profit margin, which may vary considerably depending on whether it was a negotiated rate or decided by sellers behind closed doors.

See also: wholesale price, list price, net price, fixed price, manufacturer's suggested retail price (MSRP)

This was last updated in May 2016

Continue Reading About cost-plus pricing

SearchCompliance

SearchSecurity

  • cyber attack

    A cyber attack is any attempt to gain unauthorized access to a computer, computing system or computer network with the intent to ...

  • backdoor (computing)

    A backdoor is a means to access a computer system or encrypted data that bypasses the system's customary security mechanisms.

  • post-quantum cryptography

    Post-quantum cryptography, also called quantum encryption, is the development of cryptographic systems for classical computers ...

SearchHealthIT

SearchDisasterRecovery

  • risk mitigation

    Risk mitigation is a strategy to prepare for and lessen the effects of threats faced by a business.

  • call tree

    A call tree is a layered hierarchical communication model that is used to notify specific individuals of an event and coordinate ...

  • Disaster Recovery as a Service (DRaaS)

    Disaster recovery as a service (DRaaS) is the replication and hosting of physical or virtual servers by a third party to provide ...

SearchStorage

  • cloud SLA (cloud service-level agreement)

    A cloud SLA (cloud service-level agreement) is an agreement between a cloud service provider and a customer that ensures a ...

  • NOR flash memory

    NOR flash memory is one of two types of non-volatile storage technologies.

  • RAM (Random Access Memory)

    RAM (Random Access Memory) is the hardware in a computing device where the operating system (OS), application programs and data ...

Close