Cost-plus is the oldest pricing approach in retail: figure out what the product costs you, add a percentage on top, that's the price. A $10 cost + 50% markup = $15 price. Easy to calculate, easy to defend internally, and consistent regardless of competitors or customer perception.
How cost-plus pricing works
The formula:
Price = Unit cost × (1 + markup percentage)
Unit cost includes the product itself plus directly attributable costs — shipping in, packaging, payment processing. Markup is typically 30–100% for ecommerce, varying by category. Retail apparel often runs 100–200% markup; commodities and groceries 10–30%.
Cost-plus pricing in subscriptions
For a subscription product, cost-plus has a wrinkle: the cost structure changes with cycle commitments. A subscription bottle of supplements ships with marginal cost per shipment (product COGS + shipping + payment processing), but the customer was acquired once and the relationship is recurring. Naive cost-plus pricing on each cycle ignores acquisition economics, which often produces prices that are too low — you cover marginal cost but never earn back acquisition spend.
A subscription-aware cost-plus model amortizes acquisition cost across expected lifetime:
- Per-cycle cost = COGS + shipping + processing + (CAC ÷ expected cycles)
- Per-cycle price = Per-cycle cost × (1 + target margin)
The big limitation of cost-plus pricing
Cost-plus tells you what the price needs to be to hit your margin. It says nothing about whether customers will pay it. If your costs are high and competitors are low-cost, cost-plus pricing will produce a price that loses to competitive pricing. If your product delivers far more value than competitors, cost-plus will leave money on the table compared to value-based pricing.
This is why most modern pricing strategies treat cost-plus as a floor (don't price below cost + minimum margin) rather than a target.
When cost-plus works well
- Commoditized products where customers won't pay a premium and you need to ensure margin on each sale.
- Custom or made-to-order products where each unit's cost varies and you need a consistent margin rule.
- B2B contexts where buyers expect price-from-cost transparency.