How to price manufactured products, with an example
In manufacturing, the selling price depends on two calculations that are often left loose: how much it costs to make one piece and how much of the factory each piece has to pay for. Raw material is easy to see; the warehouse rent, maintenance and the idle part of production are not.
See what goes into production cost, how to allocate the factory's fixed costs and a complete example, calculated by the same math as the calculator.
Fictional example
A small lab coat factory that sells to clinics
Suggested price per lab coat
R$82.19
With a 15% margin on the price. Below R$68.18, every sale loses money.
Calculate my priceWhat goes into the direct cost
A direct cost only exists because of each sale. In the calculator, choose “I sell products”.
Included
- Raw materials and supplies for each unit, at the price paid, including inbound freight.
- Process losses (offcuts, scrap, testing), added to the consumption of each unit.
- Outsourced labor paid per piece, such as a sewing contractor or a painting service.
- Packaging, tags and labels for each unit.
- Delivery freight, when your company pays for it.
Not included
- Warehouse rent, machine maintenance and energy that does not vary with production: fixed costs.
- Administrative, sales and supervision salaries: fixed costs.
- Sales rep commission and sales taxes: they come in as a percentage of the price.
- A new machine is not the cost of one piece; depreciation can go into fixed costs, with your accountant's guidance.
How to allocate fixed costs
In manufacturing, divide the factory's fixed costs by the production sold in the month, not by machine capacity. A factory producing half of what it could carries twice the fixed cost per piece, and the price has to reflect that.
A production team on a fixed salary can be handled in two ways: divide the production payroll by the pieces of the month and add it to the cost of each unit (in the calculator's production cost field), or keep the payroll in fixed costs. Choose one and do not count it twice.
With several product lines, split the fixed costs by machine time or by each line's revenue and run the calculator once per product.
Complete example: a small lab coat factory that sells to clinics
A fictional company, with numbers calculated by the same math as the calculator. The tax percentage is illustrative: for your company, use the effective rate your accountant gave you.
Each lab coat uses R$40.00 in fabric, trims and outsourced sewing, paid per piece. Adding R$3.00 of freight and R$2.00 of packaging, the direct cost is R$45.00.
The factory has R$18,000.00 in fixed costs per month (warehouse rent, cutting, administration and maintenance) and sells 1,200 lab coats. Each one carries R$15.00 of fixed cost, and the total cost is R$60.00.
Sales go through reps, with a 5% commission, and taxes add up to 7% of the price. With a 15% margin, the suggested price is R$60.00 divided by 0.73: R$82.19. The minimum price is R$68.18. Each lab coat leaves R$12.33 of profit, or R$14,794.52 per month.
The break-even point is 659 lab coats per month, or R$54,135.34 in revenue.
If the factory sells 20% more at the same price, the fixed costs spread over more pieces and the real margin rises to 18%.
Suggested price per lab coat
R$82.19
- Direct cost per lab coat
- R$45.00
- Allocated fixed cost
- R$15.00
- Total cost
- R$60.00
- Minimum price (zero margin)
- R$68.18
- Profit per lab coat
- R$12.33
- Break-even point
- 659 lab coats per month
- Direct cost: 54.8%
- Allocated fixed cost: 18.2%
- Taxes: 7%
- Fees and commission: 5%
- Profit: 15%
Pricing pitfalls: manufacturing
- 1Include raw material losses in the cost of the piece: offcuts, scrap and testing were paid for too.
- 2Review the price when raw materials go up; an old price list can spend months selling below cost.
- 3Sales through reps carry a commission on the price: it goes in the commission field, not in the cost.
- 4Manufacturing taxes, such as IPI (federal tax on manufactured goods) and ICMS (state sales tax), and the possible credits depend on the product and the tax regime: the effective rate comes from your accountant.
Run the numbers for your own company
Replace the example values with yours and see the suggested price, the minimum price, the break-even point and the effect of a discount. You can save the calculation as PDF and take it to your accountant. Free, no sign-up.
Frequently asked questions
What goes into the production cost of a piece?
Raw materials and supplies, including process losses, packaging, labor paid per piece and delivery freight when you pay it. Warehouse rent, maintenance and administrative salaries go into fixed costs.
How do I allocate a factory's fixed costs?
Divide the month's fixed costs by the production sold, not by machine capacity. With more than one line, first split them by machine time or by each line's revenue.
Is production payroll a fixed cost or a direct cost?
It can be handled either way. If you divide the production payroll by the pieces of the month, it becomes a direct cost of each unit. If you prefer, it stays in fixed costs. What matters is not counting it twice.
Does the calculator account for IPI and ICMS?
Not separately. You enter one percentage of taxes on the sale, which should be the effective rate your accountant gives you. Manufacturing taxes and possible credits depend on the product and the tax regime, and this page does not replace that guidance.
Got the right price? Show it to the people who buy
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