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E-commerce Cost-Plus Pricing
pricingA pricing strategy where the selling price is determined by adding a fixed markup percentage to the total cost of producing a product or delivering a service.
Definition
Cost-plus pricing is the simplest and most widely used pricing method. You calculate your total cost per unit, then add a predetermined percentage on top. This guarantees a profit on every sale, as long as your cost calculations are accurate and complete. It is especially common in manufacturing, construction, government contracts, and retail.
The main advantage of cost-plus pricing is predictability. You know your margins before you make a sale, and you can adjust quickly when costs change. However, its biggest weakness is that it ignores what customers are willing to pay. If your costs are low and the market values the product highly, cost-plus pricing leaves money on the table. If competitors can produce more cheaply, it can price you out of the market.
Many businesses start with cost-plus pricing and evolve toward value-based pricing as they better understand their customers. A hybrid approach works well: use cost-plus as a floor to ensure profitability, then adjust upward based on perceived value, competitive positioning, and willingness to pay.
Formula
Selling Price = Cost x (1 + Markup %) Example
A bakery calculates that a cake costs $12 in ingredients and labor. With a 75% markup, the selling price is $12 x 1.75 = $21. If overhead allocated per cake is $3, the true cost-plus price should be $15 x 1.75 = $26.25.
Related Terms
Markup
pricingThe percentage added to the cost of a product or service to determine its selling price. Markup is expressed as a percentage of cost, not of the final price.
Value-Based Pricing
pricingA pricing strategy that sets prices based on the perceived or measured value a product delivers to customers, rather than on the cost of production.
Contribution Margin
profitabilityThe amount each unit sold contributes toward covering fixed costs and generating profit. Calculated as selling price minus variable costs per unit.
Cost of Goods Sold (COGS)
ecommerceThe direct costs attributable to producing or acquiring the goods sold by a company. COGS includes materials, direct labor, and manufacturing overhead, but excludes indirect costs like marketing and administration.
Put It Into Practice
Use these calculators to apply cost-plus pricing to your own numbers.
SaaS Pricing Calculator
Calculate MRR, ARR, and optimize your SaaS subscription pricing.
Open calculator →Product Pricing Calculator
Calculate the optimal product price from COGS and target margin.
Open calculator →Markup vs Margin Calculator
Convert between markup and margin instantly.
Open calculator →