What does cost-based pricing typically rely on?

Cost-based pricing primarily relies on data from cost calculations. This pricing strategy involves determining the total costs associated with producing a product or service, including both fixed and variable costs, and then adding a markup to ensure profitability. The core focus is on understanding the internal financial metrics rather than external influences, which sets it apart from market-oriented approaches.

For instance, a company will calculate how much it costs to manufacture a product—factoring in labor, materials, overhead, and other operational costs—before deciding on a selling price that covers these costs and secures a profit margin. This method simplifies pricing decisions and helps ensure that all costs are met, making it a fundamental approach in many industries.