Pricing based only on product cost and a target margin, without folding in overhead, is one of the most common reasons a business can look profitable per sale and still struggle overall.
A simple way to fold overhead in
- Calculate your total monthly overhead
- Divide it across your expected sales volume to get an overhead cost per unit or per hour
- Add that figure to your direct product cost before applying your target margin
Why this catches people off guard
A product that costs $20 to make and sells for $35 looks like a healthy margin — until $8 per unit of allocated overhead is factored in, dropping real margin significantly. The product wasn’t actually as profitable as the simple cost-plus-margin math suggested.
Revisiting the number
Overhead-per-unit shifts as sales volume changes — the same fixed overhead spread across fewer units costs more per unit. Recalculate periodically rather than setting it once at launch and assuming it stays accurate indefinitely.