Why divide by (1 − margin) instead of multiplying by (1 + margin)?

Because margin lives on the price. Cost 100, multiply by 1.25 → price 125, but 25/125 is only a 20% margin. Divide by 0.75 → price 133.33 and the margin is truly 25%. The difference compounds across a year of quotes.

How do I value my own hours in direct costs?

At your break-even rate (the survival number), not your market rate. Your market rate already contains profit; putting it in costs double-counts and inflates prices beyond what you intended.

When is cost-plus the wrong method?

When the outcome's value dwarfs the cost: a landing page that sells millions should not be priced from hours and overhead. Use cost-plus as the floor check, then price the value above it.

Small business

Cost-plus pricing calculator

Cost-plus is the floor-finding method: what the job truly costs, plus overhead, priced so your target margin survives. Its classic failure is margin math done on cost instead of price, and this does it right.

Your numbers

Currency

Direct costs of the job

Materials, subcontractors, and your hours valued at cost.

Overhead allocation

Rent, software, insurance, admin as a share of direct costs. 15-30% is common.

Target profit margin

On the final price. 20-40% for services.

Results

Price to quote$1,600

Full cost (direct + overhead): $1,200
Overhead share: $200
Profit at that price: $400

Estimate

workingfigures.com/calculators/cost-plus-pricing-calculator

The formula

Full cost = direct × (1 + overhead). Price = full cost ÷ (1 − target margin). Dividing, not multiplying, is what makes the margin true: a 25% margin needs price = cost ÷ 0.75.

What this ignores

What the market will bear (cost-plus finds your floor, not the ceiling) and value pricing for outcomes worth far more than their cost. Quote at or above this number, never below it.

FAQ

Why divide by (1 − margin) instead of multiplying by (1 + margin)?: Because margin lives on the price. Cost 100, multiply by 1.25 → price 125, but 25/125 is only a 20% margin. Divide by 0.75 → price 133.33 and the margin is truly 25%. The difference compounds across a year of quotes.
How do I value my own hours in direct costs?: At your break-even rate (the survival number), not your market rate. Your market rate already contains profit; putting it in costs double-counts and inflates prices beyond what you intended.
When is cost-plus the wrong method?: When the outcome's value dwarfs the cost: a landing page that sells millions should not be priced from hours and overhead. Use cost-plus as the floor check, then price the value above it.