What is the cost-plus pricing formula?

Selling Price = Total Cost per Unit + (Total Cost per Unit × Markup%). Total cost per unit includes both direct cost (materials, labor) and an allocated share of overhead (rent, utilities, admin).

Is a 40% markup the same as a 40% profit margin?

No, and confusing the two is a common pricing mistake. Markup is calculated on cost; margin is calculated on the selling price. A 40% markup on a $18 cost gives a $25.20 price — but that's only a 28.6% margin, because $7.20 profit ÷ $25.20 price is less than $7.20 ÷ $18 cost.

What's the main weakness of cost-plus pricing?

It ignores what customers are actually willing to pay and what competitors charge. Cost-plus guarantees a margin on paper, but if the resulting price is far above the market rate, volume can collapse regardless of the math being correct.

Cost-Plus Pricing Calculator

(Markup & Margin Tool)

Add a markup percentage on top of your direct cost and overhead to find a selling price — and see the resulting profit margin, not just the markup.

Step 1 — Cost per Unit

Direct Cost per Unit ($)

Materials, direct labor — cost tied straight to making one unit

Overhead per Unit ($)

Rent, utilities, admin — allocated share of fixed costs per unit

Step 2 — Markup

Markup (%)

Percentage added on top of total cost

Calculated Results

Enter your cost per unit and markup percentage to calculate the selling price.

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Cost-Plus Pricing Starts With Cost, Not the Market

Cost-plus pricing works backward from what a unit costs you to make, adding a markup percentage on top — it says nothing about what customers will actually pay or what competitors charge, which is both its main strength (a guaranteed margin on paper) and its main weakness. Manufacturers and service businesses lean on it because their costs are usually well known and stable, unlike demand.

Selling Price = (Direct Cost + Overhead per Unit) × (1 + Markup%)

Markup % vs Margin % — Not the Same Number

Metric	Calculated On	Example ($18 cost, $25.20 price)
Markup %	Cost	40% ($7.20 ÷ $18)
Margin %	Selling Price	28.6% ($7.20 ÷ $25.20)

This is the same distinction covered in more depth on our Markup vs Margin Calculator.

Frequently Asked Questions (FAQ)

No. Markup is on cost, margin is on selling price — a 40% markup only produces a 28.6% margin, not 40%.

It ignores demand and competitor pricing entirely — the math can be correct and the resulting price still be too high or too low for the actual market.