The cost paradox: Why a better cost calculation may reduce profits

The pricing of a product has a large influence on the sales revenue and the profit. Surprisingly, research shows that a more accurate cost estimation does not automatically lead to a higher profit.

Two methods are commonly used to determine the price of an industrial product. One method is to align the price with the known market prices, another way is to estimate the cost and to add a profit margin. This last 'cost-plus' method is the most popular in the machining industry. Many machining products are custom made, which means that the competitor's price is not publicly known anyway.