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Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one's assumptions regarding the relationship between the product's price and the number of units that can be sold at that price.
Cost-based pricing is applied through setting the price of a product or good based on its production and delivery cost with a certain target margin. This method shows an emphasis for cost recovery and profit maximisation which tends to result in lower prices in commodities and/or lower quality of goods. [3]
[1] [2] [3] However, others argue that PCM is different, because target costing is a pricing method, whereas, PCM is focused on the maximum profit or minimum cost of a product, regardless of the price at which the product is sold to the end customer. [4] Some analysts [5] seem to equate PCM to design-to-cost. [6]
Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs .
Price is only a part of the total cost to satisfy a want or a need. The total cost will consider for example the cost of time in acquiring a good or a service, a cost of conscience by consuming that or even a cost of guilt "for not treating the kids". [34] It reflects the total cost of ownership.
Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan.In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of the product.
This price, a total cost-price (i.e. a replacement cost) equals the average cost price and average profit rate of an output at the point of sale to the final consumer, including all net costs incurred by all the different enterprises participating in its production (factory, storage, transport, packaging etc.), plus tax imposts, insurance ...
The business model canvas is a strategic management template used for developing new business models and documenting existing ones. [2] [3] It offers a visual chart with elements describing a firm's or product's value proposition, [4] infrastructure, customers, and finances, [1] assisting businesses to align their activities by illustrating potential trade-offs.