How to use the cost plus pricing calculator
- Enter the cost to make one unit: materials, labor and other variable costs such as packaging or fees.
- Enter the fixed overhead for the period, such as rent and software, and the units you expect to sell so the overhead can be spread across them.
- Choose your markup as a percent of full cost.
- Read the selling price, the profit per unit and the profit margin on the price. If you gave a volume, the revenue and profit at that volume are shown too.
Formula
Full cost per unit = materials + labor + other variable + fixed overhead / units
Selling price = full cost x (1 + markup / 100)
Profit per unit = selling price - full cost
Profit margin on price = profit / selling price x 100%
A markup is measured on cost and a margin is measured on price, so the margin is always the smaller percent for the same profit.
A handmade product at 500 units a month
Materials cost $18, labor $14 and other variable costs $4 per unit, so the variable cost is $36. Fixed overhead of $2,000 spread over 500 units adds $4 per unit, for a full cost of $40. A 50% markup gives a price of $40 x 1.5 = $60.
The profit is $20 per unit, which is a 33.33% margin on the $60 price. At 500 units that is $30,000 of revenue and $10,000 of profit. If only 250 units sell, overhead rises to $8 per unit, the full cost to $44 and the price at the same markup to $66.
Why include overhead
Pricing from variable cost alone can leave nothing to pay the fixed costs that keep the business running. Spreading overhead across expected units gives a full cost per unit. The estimate is only as good as your volume forecast, because fewer sales mean each unit carries more overhead.
The method also shows where a price sits relative to your own costs. It does not tell you whether customers will pay that price, so check it against what competitors charge and what the product is worth to buyers.
Markup or margin
A 50 percent markup is not a 50 percent margin. Adding half the cost on top gives a margin of one third of the price. If you want a target margin instead, work backward from the price. The markup calculator and the profit margin calculator convert between the two.
To find the volume at which revenue covers costs, use the break even calculator, and to test a price cut, the discount calculator.
Assumptions and limits
- Variable costs per unit stay the same at any volume.
- Fixed overhead is spread evenly over the units you expect to sell in the period.
- The markup is a percent of full cost and is your own choice.
- Taxes, discounts, returns and payment fees are not included.
Frequently asked questions
What is cost plus pricing?
It is setting a price by adding a markup percent to the cost of a product. Here the cost is the full cost per unit, including a share of fixed overhead.
How do I calculate a cost plus price?
Multiply the full cost per unit by one plus the markup as a decimal. A $40 cost with a 50 percent markup is $40 times 1.5, which is $60.
How should I choose the markup percent?
That is a business decision. Consider the profit you need, what similar products sell for and how sensitive your buyers are to price. The tool applies the percent you pick and shows the resulting margin.
What if I do not know my sales volume?
Use a conservative estimate and check how the price changes at a lower volume. If you leave overhead blank, the tool prices from variable cost alone.