Price floor in pricing: definition, formula and how to set one

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.

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