Cost-plus pricing sets a selling price by adding a markup to a defined cost per unit. For an ecommerce retailer, the hard part is deciding which costs to include and how to handle fees that rise with the selling price.
This guide works through one SKU, from its cost breakdown to a supplier increase, and ends with a decision about whether to replenish it.
Key Takeaways
- Calculate cost-plus price as cost base per unit × (1 + markup rate). The markup percentage uses cost as its denominator.
- A narrower cost base needs a markup that also covers the costs left outside it.
- Allocated overhead depends on expected volume; a lower sales volume can undermine the calculation.
- When purchase costs rise, calculate the surplus at a comparable market price before placing the next order.
What is cost-plus pricing?
Cost-plus pricing means adding a percentage markup or a fixed amount to a chosen unit cost. This article uses a percentage markup so you can see how a cost increase changes the price.
Cost-based pricing is the broader concept: costs are a central reference for setting prices. Cost-plus is one way to apply it, with an explicit addition to a chosen base. The terms should not be treated as exact synonyms.
The formula uses the seller’s costs; it does not measure demand or what buyers will pay. As ACCA’s practical pricing guide explains, deriving a price from costs does not establish that it will sell. For a comparison with other approaches, see the overview of ecommerce pricing strategies.
The cost-plus pricing formula
For a percentage markup, use:
Selling price = cost base per unit × (1 + markup rate)
Write the rate as a decimal: a 40% markup is 0.40. With a $36 base:
$36 × 1.40 = $50.40
The addition is $14.40, and its denominator is the $36 cost base. That same $14.40 is only 28.57% of the $50.40 selling price. A 40% markup on cost is therefore not a 40% margin on selling price.
Here, the amount above the chosen base is called surplus. Expenses left outside the base still need to come out of it. If the base includes allocated overhead, this surplus differs from gross profit calculated from accounting cost of goods sold. The margin and markup explanation covers those distinctions in more detail.
Choose the cost base and what the markup must cover
Define the base before choosing a percentage. A markup of 40% on the supplier invoice is a different policy from 40% on the cost of acquiring, fulfilling, and supporting a sale.
For a retailer, possible bases include:
- Landed purchase cost: the product’s purchase cost plus inbound freight and other acquisition costs you incur.
- Variable cost per sale: landed purchase cost plus costs that rise with sales, such as packaging and fulfillment charges.
- A fuller allocated cost: those costs plus a planned share of relevant fixed operating expenses.
Use these labels consistently: they describe pricing inputs, which can differ from accounting cost of goods sold. With a narrower base, the markup must pay the costs left out of it.
Assign costs to the SKU where possible. Split inbound freight by weight, units, or the basis the carrier charges for. A heavy item should not get the same share as a light one by default. Use a consistent split for order-level costs when a basket contains several items.
Include expected return losses and customer acquisition spending where they apply, using estimates for that product or channel. Count each expense once, either in the base or in what the markup covers. Percentage selling fees need a separate calculation, shown below.
Set the markup from a coverage requirement
To calculate the markup, first decide which costs it needs to cover:
Markup rate = (costs outside the base per unit + intended surplus per unit) ÷ cost base per unit
This works for excluded costs expressed as dollar amounts per unit. Handle fees based on the selling price separately.
A percentage rule also makes the dollar surplus rise when costs rise. If you want to keep a fixed dollar surplus instead, add that amount to the base.
Allocate fixed costs using an explicit volume assumption
Monthly rent stays the same when you sell fewer units, but each unit has to carry a larger share of it. Variable costs, such as packaging, rise in total as sales rise.
Consider a hypothetical product line with $3,600 of monthly fixed overhead and $30 of variable cost per unit. Assume the same overhead supports both volumes below.
| Planning assumption | 600 units sold | 300 units sold |
|---|---|---|
| Monthly fixed overhead | $3,600 | $3,600 |
| Allocated overhead per unit | $6.00 | $12.00 |
| Variable cost per unit | $30.00 | $30.00 |
| Combined cost base per unit | $36.00 | $42.00 |
| Calculated price with 40% markup | $50.40 | $58.80 |
The higher unit allocation does not mean the monthly overhead doubled. It means fewer sales are carrying it.
Use a realistic sales forecast and a lower-volume scenario. Across a mixed catalog, allocate overhead by the expense it reflects: storage space for warehousing, for example, or handling time for fulfillment.
The circular pricing problem
Cost-plus can become circular when fixed overhead is allocated per unit: lower expected volume raises unit cost, which raises the proposed price, which may reduce volume further.
If the forecast requires another warehouse or staff shift, include that extra fixed cost too.
Cost-plus pricing example: one ecommerce SKU
All figures in this worked example are hypothetical, including the competitor prices used later. Assume one item per order, no discount, and a selling price excluding sales tax. Outbound shipping is charged separately at cost, so both the shipping charge and expense are excluded.
| Cost input | Amount per unit |
|---|---|
| Supplier purchase price | $24.00 |
| Allocated inbound freight | $2.00 |
| Packaging and fulfillment | $3.00 |
| Expected return-handling and stock-loss allowance | $1.00 |
| Fixed overhead allocation at planned volume | $6.00 |
| Cost base before percentage selling fees | $36.00 |
This is the cost breakdown behind the formula example. The example assumes no customer acquisition spending or other selling costs beyond those listed and the channel fee below.
Account for fees charged on the selling price
The channel now takes 10% of the item selling price. At the original $50.40 price, the $5.04 fee reduces the surplus to $9.36.
To keep the original surplus after the fee, divide the amount you need to retain by 0.90:
Fee-adjusted price = cost base × (1 + markup rate) ÷ (1 − fee rate)
$36 × 1.40 ÷ 0.90 = $56.00
At $56, the $5.60 fee leaves the required $14.40 surplus. Adding 10% to the old price would give $55.44 and fall short: the channel charges its percentage on the final selling price.
This version assumes the fee applies only to the item selling price. If a channel charges fees on shipping or tax, has a fixed transaction charge, or uses tiered rates, model those terms separately. For an assessment of revenue left after variable selling costs, use the contribution margin calculation.
Update the price when purchase costs change
Suppose the supplier raises its price from $24 to $29 for the next replenishment. Every other cost, the planned volume, the 40% markup, and the 10% channel fee stay the same.
The cost base rises to $41. The new surplus target is $16.40, so the fee-adjusted price is:
($41 + $16.40) ÷ 0.90 = $63.78
That price is rounded to the nearest cent. Recalculate the surplus if you choose a different price ending. Keeping a percentage markup raises the dollar target as costs rise; keeping the original fixed dollar surplus would produce a lower price.
Use the cost relevant to the decision. A quote for the next order can differ from what you paid for stock already on the shelf. Keep replacement cost separate from the recorded cost of existing inventory, and include any changes to freight, order quantities, returns, or fees.
What if comparable offers are $54–$58?
In this hypothetical market, competing offers for the same SKU are in stock at $54–$58, with equivalent tax, shipping, and buyer terms. Suppose your sales evidence indicates buyers will accept $58 but not $63.78. At $58, the calculation becomes:
$58 − ($58 × 10%) − $41 = $11.20 surplus per unit
That is $5.20 below the $16.40 target. The decision is how to deal with that shortfall:
- Lower the cost. Negotiate the purchase price or reduce freight or fulfillment expense. To retain a fixed $16.40 surplus at $58, the base must fall to $35.80: $58 × 0.90 − $16.40. This keeps the dollar target fixed while the costs change.
- Accept a smaller surplus. Approve $11.20 per unit if it meets the business’s minimum return for this SKU, using the same volume and cost assumptions. Make the exception explicit.
- Do not replenish. If buyers reject the calculated price, costs cannot be reduced, and $11.20 is below the acceptable return, stop ordering the SKU on these terms. Existing stock needs a separate sell-through decision.
When cost-plus pricing helps, and where it falls short
Cost-plus gives a team a consistent rule across a catalog: the same cost definitions and markup make supplier changes easy to trace. It works best when costs and sales volumes are reasonably stable.
Our view at SkuPeek: compare the calculated price with offers for the same product and variant in the same market. Match currency, stock status, tax, and delivery terms before treating a cheaper listing as comparable. SkuPeek finds matching competitor offers and compares their prices and availability; the retailer decides what to charge.
For this SKU, that comparison turns a proposed price increase into a purchasing decision. The gap between $63.78 and the comparable offers calls for different supplier terms, a smaller surplus, or a different assortment. A markup change alone does not explain which choice is worthwhile.
Turn the calculation into a pricing policy
Keep six fields together for each product group or channel:
- Cost base: included and excluded expenses, with their sources.
- Allocation: overhead, planned volume, and the lower-volume scenario.
- Markup: percentage or fixed dollar target, and what it covers.
- Sales terms: fees, discounts, tax and shipping treatment, and rounding.
- Review trigger: a cost change or review date, with an approver.
- Decision evidence: comparable offers, actual sales, and approved exceptions.
Measure actual receipts after discounts using the distinction between list price and net price.
Decision for the example SKU: hold replenishment at the new $29 purchase price until the retailer secures lower costs or approves the $11.20 surplus at $58. If neither is acceptable and buyers will not pay $63.78, do not reorder.
Updated October 10, 2026: Expanded the supplier-cost example to calculate the surplus at a $58 selling price after a 10% channel fee, and added options for reducing costs, accepting a lower surplus, or stopping replenishment.
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