This is a very critical part of the Pricing Strategy – the basis of which prices are set, and how they will be calculated. In simple terms, there are two choices: Value Pricing or Absorption Pricing.
Value pricing is orientated around what an acceptable price would be for the product or service you offer as a function of history, competition and quality.
Absorption pricing is orientated around the mathematics of recovering the costs you are likely to incur to deliver a product or service with profit added on top.
For further information please refer to Value vs Absorption – how to price?