A method for determining the price at which a product should be sold to achieve a desired profit margin is built upon factoring in costs and desired profit. For instance, if a product costs $50 to produce and a 20% profit margin is desired, the calculated selling price would be $62.50.
This pricing strategy provides businesses with a structured approach to profitability. It allows for informed decision-making, ensuring that prices cover production costs while contributing to overall financial goals. Historically, businesses have used various methods for price setting, but the structured approach of cost-plus pricing has become increasingly relevant in competitive markets. Its adoption provides greater control over profit margins and contributes to financial stability.