Manufacturers today face serious headwinds. Tariffs, labour shortages, and shifting supply chains are no longer future risks. They are current realities. Many rely on the old cost-plus pricing model, and the disadvantages of cost based pricing are becoming clear. At Taylor Wells, we see a gap growing between cost management and pricing strategy. This article offers a clear and practical way forward.
>Download Now: Free PDF How to Improve Your Pricing Team Performance
The Disadvantages of Cost Based Pricing Are Failing Manufacturers
Cost-plus pricing, where companies add a fixed margin to total costs, worked well in stable times. But now, costs shift rapidly. Raw materials, freight, and energy don’t stay steady. Tariffs can hit without warning. As a result, companies using rigid cost-plus models face the disadvantages of cost based pricing, risking selling below cost or eroding their margins.
Over the past year, upstream input prices have climbed steeply. For example, in Australia, KPMG reports that input costs across the manufacturing value chain are up by 8‑plus per cent on some fronts. Transport and freight costs, driven by fuel and labour, are also rising. When costs jump, a fixed margin cannot absorb the shock.
Without real-time pricing updates, manufacturers simply don’t react fast enough. The risk is margin erosion hidden in plain sight and a misaligned manufacturer pricing strategy that fails to protect profitability.
Capability Building Programmes For Pricing & Sales Teams!
Modern Approaches to Overcome the Disadvantages of Cost Based Pricing
To survive and thrive, manufacturers must adopt strategic, data‑driven pricing. Tools such as forward contracts allow locking in costs before tariffs bite. Pass-through pricing lets companies transparently share cost increases with customers. Co-share agreements with suppliers spread risk and align incentives so everyone wins. These kinds of strategic pricing tools help manufacturers move beyond the disadvantages of cost based pricing.
Alongside these tools, supply chain reshoring and nearshoring are becoming tactical moves. By sourcing closer to home or from low-risk regions, manufacturers strengthen the manufacturing value chain and reduce exposure to unpredictable tariffs and freight costs.
Technology also plays a key role. Predictive analytics, scenario modelling, and real-time data give pricing teams foresight. They can adjust pricing more frequently, not just on a quarterly or annual basis. In this way, a modern manufacturer pricing strategy turns pricing into a proactive, not reactive, part of the manufacturing business strategy.
Introduction to Price Optimisation 💰 Podcast Ep. 74!
Labour Costs and Margin Pressure
Labour is not just another cost, it’s a strategic risk. Many countries, including Australia, face labour shortages in skilled technical roles. At the same time, wage pressures keep growing. According to forecasts, labour costs could rise strongly in the coming years, highlighting the disadvantages of cost based pricing.
If you rely on cost-plus pricing, you risk underestimating these labour trends. Instead, manufacturers should build expected labour cost increases into their price models now. Use scenario modelling to test different labour-cost outcomes. Combine that with automation and flexible labour strategies, such as using part-time skilled workers or retirees, to ease pressure and strengthen your manufacturing value chain.
Automation is especially powerful. Reducing labour intensity helps lower unit labour costs and supports reshoring strategies. It also strengthens a modern manufacturer pricing strategy and aligns with an adaptive manufacturing business strategy.
Advice for Leaders to Strengthen Manufacturing Business Strategy
If you are a business leader, ask yourself: Can your pricing model keep pace with today’s volatility? Relying on historical cost-plus margins highlights the disadvantages of cost based pricing. You must assess your supply chain risk, labour trends, and cost drivers to strengthen your manufacturing business strategy.
Take a cross-functional approach: bring together procurement, finance, operations, and pricing teams. Review your manufacturer pricing strategy and your supply sources. Are you too exposed to foreign suppliers or tariff risk? A diversified supply base and flexible pricing policy support a resilient manufacturing value chain.
Also, invest in the right tools. A forecasting engine or scenario-modelling platform gives you visibility. It lets you test “what-if” scenarios: What happens if labour costs rise 20 per cent? What if a new tariff is imposed? With that insight, your pricing can pre‑empt risks, not just react to them.
Pricing Recruitment For Pricing Managers!
How Pricing Teams Can Avoid the Disadvantages of Cost Based Pricing
For pricing teams, flexibility is non-negotiable. You need the agility to update prices in real time, or near real time, based on cost changes. That means using data, not gut feel, and building a pricing architecture that overcomes the disadvantages of cost based pricing and supports a strong manufacturer pricing strategy.
Scenario modelling should be part of your toolkit. Run “what-if” analyses regularly. Model different cost pressures: labour, freight, materials. Build pass-through or co-share structures so customers share the burden transparently and protect the manufacturing value chain.
And communicate clearly. When costs rise, your customers need to understand why pricing must change. Transparent conversations, backed by data, build trust. This helps preserve long-term customer relationships while supporting an adaptive manufacturing business strategy.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Rethinking Pricing Strategies for a Strong Manufacturing Value Chain
Cost-plus pricing belongs to a more predictable era. In today’s world of tariffs, labour shortages, and supply chain disruptions, it no longer protects margins. Manufacturers that stick to rigid models face the disadvantages of cost based pricing and put profits at risk.
Now is the time for business leaders to assess whether their pricing model can handle volatility and to align strategy across their manufacturing business strategy. Pricing teams must build agility. Use data, scenario modelling, and open communication to safeguard value for both your company and your customers and strengthen your manufacturer pricing strategy. Rethink pricing because it’s your margin’s first line of defence and a key part of a resilient manufacturing value chain.
If your pricing strategy feels stuck in the past, you don’t have to face it alone. Reach out today to discuss how our pricing and organisational consulting services can help your business adapt, plan, and thrive. Let’s work together to make your pricing smarter, faster, and more resilient.
For a comprehensive view of building a great pricing team to prevent loss in revenue, Download a complimentary whitepaper on How to Improve Your Pricing Team Performance.
Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
Make your pricing world-class!
