Business
Pricing Calculator
Prices from cost upward, where the price has to carry overhead as well as margin.
Result
Commission is treated as a percentage of the final price, which is how it is usually paid. That is why it has to be built into the divisor rather than added to cost.
Get a Free Business AuditHow the calculation works
Direct cost divided by one minus overhead and margin together, so the resulting price carries both. Adding overhead and then a margin percentage to cost produces a lower result than most people expect, which is why the division form is the one to use.
What moves the number
- Direct cost, complete and accurate.
- Overhead rate as a share of revenue.
- Target margin.
- What the market will support.
Where this one goes wrong
Cost-plus pricing establishes a floor rather than a price, because it says nothing about what the work is worth to the buyer, and a business that only prices from cost leaves money on the table wherever value exceeds cost. Know the floor and price above it where you can. Where the market will not support the floor, the answer is a cost or a capacity change rather than a price nobody pays.
Before you quote
- Treat the cost-plus result as a floor, not a price.
- Check the resulting margin against the markup implied.
- Address cost or scope where the market will not support the floor.
Questions
About this calculator
Is cost-plus pricing enough?
It establishes a floor rather than a price, since it says nothing about what the work is worth to the buyer. A business pricing only from cost leaves money on the table wherever value exceeds cost, which is frequently.
Why divide rather than add percentages?
Because adding overhead and margin percentages to cost produces a lower result than intended. Dividing cost by one minus the combined rate is what makes the price actually carry both, and the gap between the two methods is substantial.
What if the market will not pay the calculated price?
Then the cost base or the scope has to change, since a price nobody pays produces no revenue. That is a more useful finding than absorbing the gap quietly, which simply means that work is subsidised by everything else.
The formula
price = total cost ÷ (1 − margin − commission)
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How to use this calculator
- Materials ($). Enter your own figure; the page starts at $620.
- Labour cost ($). Burdened, wage plus taxes, insurance and benefits.
- Overhead allocation ($). Enter your own figure; the page starts at $260.
- Target net margin (%). Enter your own figure; the page starts at 25%.
- Sales commission (%). Enter your own figure; the page starts at 5%.
The result updates as you type, so you can try a figure, see what it does to price to quote, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Materials | $620 |
| Labour cost | $480 |
| Overhead allocation | $260 |
| Target net margin | 25% |
| Sales commission | 5% |
What comes out
| Result | Value |
|---|---|
| Price to quote main result | $1,942.86 |
| Total cost | $1,360 |
| Profit at that price | $485.71 |
| Markup on cost | 42.86% |
To keep 25% after paying $97.14 of commission, quote $1,942.86. A markup of 42.86% on your $1,360 of cost.
How sensitive the answer is
Holding everything else steady and changing only materials, this is what happens to price to quote. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Materials ($) | Price to quote |
|---|---|
| $310 | $1,500.00 |
| $465 | $1,721.43 |
| $620 example above | $1,942.86 |
| $930 | $2,385.71 |
| $1,240 | $2,828.57 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Materials ($)
- A money amount, starting at $620.
- Labour cost ($)
- Burdened, wage plus taxes, insurance and benefits.
- Overhead allocation ($)
- A money amount, starting at $260.
- Target net margin (%)
- A percentage, between 0 and 95, starting at 25%.
- Sales commission (%)
- A percentage, between 0 and 50, starting at 5%.
What the results tell you
| Result | What it is |
|---|---|
| Price to quote | The headline result. A money figure. |
| Total cost | A money figure. |
| Profit at that price | A money figure. |
| Markup on cost | A percentage. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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