What is cost-plus pricing?
Cost-plus is the most straightforward way to price anything: work out what it costs you, add a markup, and that's your price. It's simple and safe — with one blind spot worth knowing.
Skip the math — the free cost plus pricing calculator runs this from your own figures.
Open the free calculator →The basic method
Cost-plus pricing sets a price by adding a fixed markup to the total cost of producing something. Total cost usually means materials, labor, and a share of overhead; the markup is the profit you add on top.
The formula is: price = total cost × (1 + markup). A job costing $60 with a 40% markup is priced at $60 × 1.4 = $84. It guarantees every sale covers its costs and adds a set profit.
Why businesses use it
It's popular because it's simple, transparent, and safe. You can't accidentally price below cost, it's easy to explain to customers, and it scales across a catalog or job list without much analysis. Trades, manufacturers, and many service businesses rely on it.
It also makes quoting fast: capture your costs, apply a standard markup, and you have a defensible price.
The blind spot
Cost-plus ignores what the customer is willing to pay. If your costs are low but the value to the customer is high, cost-plus can leave money on the table; if your costs are high, it can price you out of the market even though the value doesn't justify it.
In other words, cost-plus anchors on you, not the customer. It sets a sensible floor, but the market sets the ceiling — and sometimes the two are far apart.
Cost-plus vs value-based pricing
Value-based pricing starts from the worth of the outcome to the customer, not your cost. It can capture far more margin on high-value work, but it's harder to estimate and justify. Cost-plus is easier and safer; value-based is more profitable when you can pull it off.
Many businesses use cost-plus as a baseline to ensure they never underprice, then adjust upward toward value where the market allows.
Get the markup right
The markup has to cover more than just profit — it needs to absorb any costs you didn't fully allocate and leave a real margin. And remember markup and margin aren't the same: a 40% markup produces less than a 40% margin.
The free calculator below builds a price from your materials, labor, overhead, and markup, and shows the margin it actually produces, so your cost-plus price is both safe and clear.
Questions
What markup should I use for cost-plus pricing?
There's no universal figure — it depends on your industry, competition, and how fully you've captured your costs. The markup must cover your target profit plus any overhead or risk not already in the cost. Rather than copy a number, work out the margin you need to run profitably, then set the markup that produces it (remembering markup and margin differ). Check the resulting price against the market before committing.
Does cost-plus pricing include my own time?
It should, if your time has a cost to the business. For a service or a job you perform, include your labor at a realistic rate in the cost before applying markup — otherwise you're pricing your own work at zero and the 'profit' is really just paying you. Costing your time properly is one of the most common fixes that turns an unprofitable cost-plus price into a fair one.