Cost-based pricing calculates price by starting with the total cost (development, infrastructure, support) and adding a desired profit margin. It is straightforward to implement but does not account for customer willingness to pay or competitive positioning.

Example: A SaaS company calculates that delivering its product costs $20 per customer per month (hosting, support, overhead). It applies a 4x markup to set a list price of $80/month, ensuring profitability at current costs.