Cost-plus Pricing
Cost-plus pricing sets your price by adding a fixed margin on top of what something costs you to make, which is simple but blind to what the customer would actually pay.
Follow the arrow from raw cost, through the margin bolted on, to a market check tacked on at the end.
Reach for this when…
- You're setting a price for the first time and have no other reference point.
- You suspect you're underpricing but can't prove it.
- A supplier cost just rose and you need a defensible way to reprice fast.
How to run it
- Calculate total cost per unit: materials, labour, overhead.
- Decide the margin percentage you need to hit your profit target.
- Add the margin to cost to get the price.
- Check that price against what customers actually pay for comparable goods.
- Adjust if the cost-plus number is out of step with the market.
A worked example
Situation. Kadri Tamm ran Kuldne Ahi, a bakery in Tallinn, Estonia, and priced every loaf by doubling her flour and labour cost, the way her father had.
Applied. She ran the cost-plus numbers properly, then checked them against three nearby bakeries, and found her signature rye was priced a third below the market for something customers already queued for.
Result. She raised the rye price to match the market, left the everyday loaves on cost-plus, and the queue didn't shorten.
The catch
Cost-plus tells you the floor, not the price. It ignores what the customer is willing to pay, so it quietly underprices anything customers value highly and overprices anything they don't. Never let it be the last step, only the first.
A price nobody complains about is a price you probably set too low.