Which pricing method starts with the cost and adjusts for demand and desired profit?

The correct answer is cost-based pricing because this method begins by determining the total cost of producing a product or service, including both fixed and variable costs. Once the total cost is established, a markup is added to achieve the desired profit margin. This pricing strategy ensures that all costs are covered and a profit is generated, making it a straightforward approach for businesses, especially when calculating pricing for new products or in consistent marketplaces.

Value-based pricing, on the other hand, is centered around the perceived value of a product to customers rather than the costs incurred. This method determines pricing based on what customers are willing to pay based on the value they receive.

Competition-based pricing focuses on setting prices based on what competitors are charging for similar products. This strategy considers market positioning and competitor pricing structures rather than internal cost calculations.

Dynamic pricing refers to adjusting prices in real-time based on current market demand and supply conditions, often seen in industries like hospitality and travel. It does not follow the cost-first approach but instead responds to external factors affecting pricing.

Thus, cost-based pricing is the method that aligns with starting from the cost and then making adjustments for demand and profit objectives.