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Target return pricing

Target return pricing is a pricing strategy where a company sets the price of its product or service based on the desired return on investment. This strategy involves calculating the cost of production, adding a desired profit margin, and then determining the selling price accordingly.

For example, if a company wants to achieve a 20% return on investment and the cost of production for a product is $50, the company would add a 20% profit margin to the cost of production to determine the selling price. In this case, the selling price would be $60 ($50 + 20% of $50).

Target return pricing is often used by companies that have a specific return on investment goal in mind and want to ensure that they are able to achieve that goal through their pricing strategy.

Benefits of target return pricing:

  • Profit maximization: By setting prices based on desired returns, companies can maximize their profits.
  • Goal-oriented: This strategy helps companies stay focused on achieving their return on investment goals.
  • Competitive advantage: Companies using target return pricing can gain a competitive advantage by offering products at competitive prices while still achieving their desired returns.

Overall, target return pricing can be a valuable pricing strategy for companies looking to achieve specific return on investment goals while remaining competitive in the market.

For more information, you can visit Wikipedia.