Calculating cost price and determining product price

Include all costs in the final price

You can sort out the costs your company makes :

Direct and indirect costs (cost price):

• Direct costs: are directly related to your product, such as purchasing or production costs. For example, if you make a shoe, you will have costs for the glue, for leather, and for sewing thread.
• Indirect costs: are indirectly related to the product. To make a shoe, you need energy for the sewing machine. Because you also use the same energy to illuminate your business premises, the energy costs are indirect.
  

Fixed and variable costs:

• Fixed costs: are separate from a product, but apply to your entire company. Examples are personnel costs and depreciation costs. You always have fixed costs.
• Variable costs: depend on the number of products you produce or purchase. Think of hiring temporary staff or transport costs.
• You usually have to charge VAT. Whether that is 21%, 9%, or 0%, depends on the type of product. Of course, you also want to make some money yourself. That is your margin or profit.
  

Calculate the cost price

There are several ways to determine the cost of a product. The 3 most commonly used methods are:
Integral cost price calculation

Cost centre calculation

Activity based costing

Integral cost price

You calculate the integral cost price of your product as follows: start with the cost price of your product (direct + indirect costs) and add a certain margin to this. The margin you can use differs per industry. Check with your trade association which margin is customary in your industry. This amount is excluding VAT.

Cost centre method

The direct costs are related to a specific product. Name the different products. We call these the main cost centres. Then calculate the indirect costs (also called overhead). We call these the secondary cost centres. Divide the secondary cost centres over the main cost centres using a percentage. Assume a realistic sales number of products or numbers produced. We call this the normal occupancy. You calculate the cost price by dividing the total costs per cost centre by the normal occupancy.

Activity Based Costing (ABC)

The ABC method is very similar to the cost centre method. With this method the independent business units are not regarded as the main cost. In the ABC method, you define the activities needed to make or sell a product. Some activities are bundled in activity centres and then assigned to the most important activity. We call this important activity the cost driver. The cost driver is allocated to a product.

Tips to determine the product price

Market price

Find out how much other producers are charging for a product and use a similar price yourself. For example: you start a clothing store, and notice that your competitor is charging €100 for a pair of trousers. Use that as a guideline. Current prices and price developments of products, services, and producers can be found on the CBS website (in Dutch).

Value for the customer

You can also make your price dependent on the value your product has for the customer. A painter can make the price of their paintings depend on what art lovers are willing to pay for them. Market research will tell you more about how much a customer is willing to pay for a product.

No price agreements

Entrepreneurs are not allowed to make price agreements among themselves. You decide your prices yourself.

Advice on determining a price

Your sector organisation can advise you on pricing. Find your sector organisation on our Contact page.

Use a price index to calculate and adjust your price

Have your costs increased? Has the quality of your service or product improved? Or do you want to earn more from the sale of your service or product? Calculate and adjust your price with a price index.