Which pricing strategy calculates price by adding a markup to costs?

The pricing strategy that calculates price by adding a markup to costs is Cost-Based Pricing. This approach involves determining the total cost of producing a product or service (including materials, labor, and overhead) and then adding a specific percentage or fixed amount to that cost to establish the selling price. This method is straightforward and allows businesses to ensure that they cover their costs while generating a profit.

By focusing on costs, this strategy is particularly effective for companies that have stable and predictable costs, as it helps maintain profitability under varying sales conditions. It can be beneficial in competitive markets where the cost is a critical factor for pricing decisions. While other pricing strategies take into account external factors like market demand or perceived value, Cost-Based Pricing centers primarily on internal cost structures, making it a foundational method in pricing decisions for many businesses.