This pricing technique goals to attain a selected share return on funding (ROI). An organization calculates its desired revenue margin primarily based on complete prices and invested capital. As an illustration, if an organization invests $1 million in growing a product and needs a 20% ROI, it can worth the product to generate $200,000 in revenue.
Setting profitability targets supplies a transparent monetary route, permitting companies to evaluate the viability of merchandise and tasks. This method promotes monetary stability and sustainable progress by making certain that investments generate satisfactory returns. Traditionally, companies searching for predictable profitability have favored this methodology, particularly in industries with steady markets and comparatively predictable prices.