How to calculate your cost price?
Learn the definition of cost price and how to calculate it to improve your company's margin. Automate your calculations with our free online calculator.
Inventory and WMS
Glossary
Cost price
The total of what it really costs to make a product or deliver a service, materials, labour and overhead included; the basis of the selling price and the margin.
Cost price is the sum of every expense incurred to produce one unit of a product or one hour of a service. It answers a simple question many SMBs cannot settle precisely: what does this product really cost us before we add the margin?
The three components
Direct costs are easy: raw materials, components, subcontracting, directly assigned labour. Indirect costs are trickier: plant rent, energy, equipment depreciation, supervision salaries, which must be allocated across products with a driver (machine hours, labour hours, volume). Company overhead (administration, sales) is added last depending on the method chosen (full costing or variable costing).
Why the calculation drifts
In an Excel file, the allocation driver is three years old, scrap is not counted and machine setup time is forgotten. The result: some products are sold at a loss without anyone knowing, and others are overpriced against the competition. An ERP or custom software that captures real times and consumption puts the calculation back on live data.
A free tool to start
Witify offers an online cost price calculator that applies the full method to your numbers. It is a good starting point before automating the calculation in your management system.
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Frequently asked questions
Cost price is what the product costs to produce; selling price is what the customer pays. The difference is gross margin, which must cover unallocated expenses and profit.
At least once a year, and after every significant change in material prices or wages. A system that captures data continuously lets you follow it per batch or per order.
Pick the driver that best reflects what consumes resources: machine hours for an automated plant, labour hours for a manual shop. The driver matters less than its consistency.
