- Variable cost plus pricing adds a markup to variable costs to include a profit that covers both fixed and variable costs.
- Pricing based on the principle of “variable costs plus” is especially useful for contract bidding, when fixed costs are stable.
- This pricing method can also make sense for companies that can produce more units without significantly impacting fixed costs.
- Variable cost plus pricing does not take into account market factors such as demand or customer perception of value.
- Pricing variable cost plus can also lead to pricing inefficiencies if the company’s variable costs are low.