What is rate of return pricing?
This is a way for companies to arrange their pricing structure so they meet a target rate of return. Once the company has set an objective, it can then change its prices to help it achieve its goals.
Where have you heard about rate of return pricing?
It's a strategy that's commonly used by businesses, but it only really works when the firm involved is a market leader, or has few real competitors.
What you need to know about rate of return pricing.
This concept is similar to the idea of return on an investment. But for companies, using this approach involves changing the price of their products to achieve their goal. When it's successful, rate of return pricing helps firms achieve the level of profit that's needed to keep their liquidity intact. But to keep the target rate of return constant, companies must continuously alter their prices as demand changes.
Find out more about rate of return pricing.
To understand this technique, it helps to have knowledge of profit margins. Learn more with our guide.