What is cost-plus pricing?
Cost-plus pricing sets a price by adding a fixed markup to the cost of a product: work out what it costs to make or buy, add a percentage, and that is the price.
How the formula works
Include every variable cost in the unit cost: the product, packaging, shipping, payment fees and an allowance for returns.
Price = unit cost × (1 + markup percentage)
A cost-plus pricing example
An item costs $40 to buy and deliver. With a 50% markup, the price is $40 × 1.5 = $60, which leaves $20 of gross profit on each sale.
Markup vs margin
Markup is profit as a percentage of cost; margin is profit as a percentage of price. In the example, the markup is 50% ($20 ÷ $40) but the margin is 33% ($20 ÷ $60). Confusing the two is a classic way to underprice: a 25% markup is only a 20% margin.
Cost-plus vs value-based pricing
Cost-plus looks inward at what the product costs you. Value-based pricing looks outward at what the product is worth to the customer and what the alternatives cost. Cost-plus is simple and easy to defend; value-based usually earns more, but needs evidence about customers.
Pros and cons of cost-plus pricing
- Pro: simple, quick and easy to justify.
- Pro: guarantees a margin on every sale, if the costs are right.
- Con: ignores demand and competition entirely.
- Con: leaves money on the table when customers would pay more.
Cost-plus is a good way to set a price floor even when the selling price is set another way. Dynamic Pricing Engine applies floors as guardrails, so demand and competitor rules can move prices without dropping below cost plus margin.
Last reviewed 2026-11-01.