What is a price floor in pricing?
In business pricing, a price floor is the lowest price an item is allowed to sell for, usually its cost plus the minimum margin the business needs, enforced as a minimum price rule that automated pricing cannot go below.
Economists also use the term for a legal minimum price set by a government; this page is about the business kind.
Price floor formula
A common way to set it is from cost:
Price floor = unit cost × (1 + minimum markup)
With a unit cost of $40 and a minimum markup of 25%, the floor is $50, a 20% margin on the selling price. Some teams set a margin floor directly instead: at a 20% margin floor, price = cost ÷ (1 − 0.20) = $50.
Price floor vs price ceiling
The floor protects margin; the ceiling protects customers and reputation, for example by never exceeding a recommended retail price. Together they define the range automated pricing is allowed to move in.
How to set a price floor
- Include every variable cost: product, shipping, payment fees and expected returns.
- Add the minimum margin that makes the sale worth having.
- Allow exceptions deliberately, such as clearing expiring stock below cost.
- Review floors when costs change, not once a year.
Floors that hold
Dynamic Pricing Engine applies price floors as guardrails after its rules run, so no demand, inventory or competitor rule can take a price below the floor.
Last reviewed 2026-11-01.