Strategy: Calculate price based on margin.

A commonly used strategy is to charge a (say) 50% margin relative to an estimate of variable costs. The idea is that assuming that the expected volume of transactions is achieved, the margin covers the fixed costs.

The biggest advantage of this method is that the margin is positive. Some of the pricing strategies discussed earlier in this blog don’t have this advantage.

The biggest disadvantage is that profit is not objectively being maximized.

Better pricing decisions can be made by a system that can learn from consumer choice.


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