From the course: A Scientific Approach to Setting Your Prices

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Applying marginal cost pricing

Applying marginal cost pricing

From the course: A Scientific Approach to Setting Your Prices

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Applying marginal cost pricing

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- Marginal cost pricing. This one is even worse than cost-based pricing. This is where you say, we had a big cost of a million dollars to make this software, and we plan to get that back by selling 500 of them for $2,000 each, but we sell it on a memory stick, which only costs us $2. So if we sell one for $3, it's still a dollar profit, or contribution as it's often called. So it's still worth having. So in this case, you can have it for $3. Well, yes, providing nobody else hears about it, and providing that we sell enough of the high-priced ones or a huge amount of the low-priced ones to get our development million back. And providing you really know that that person wouldn't have paid more than $3 for it. Now, that's an extreme version, but you get the point. Sometimes people have spare staff sitting around. So the logic is that if you at least keep them busy for cost price or slightly more than cost, it's worth doing. It's worth selling the work at a really low price to cover the…

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