Make every layer challengeable
scenario price floor = direct cost + allocated shared cost + minimum contribution
- direct cost
- Cost directly attributable to the unit or job (currency per unit) — business record
- allocated shared cost
- Explicit share assigned using a documented method (currency per unit) — user allocation
- minimum contribution
- User-selected amount retained above those cost layers (currency per unit) — user assumption
- Define the unit, job or order being priced.
- Reconcile direct costs to the selected boundary.
- Choose and document a shared-cost allocation method.
- Add a minimum contribution scenario without relabelling it as market evidence.
- Stress-test omitted fees, discounts, capacity and cash-timing constraints.
Worked example: a visible allocation
| Layer | Amount | Basis |
|---|---|---|
| Direct cost | 45 | Per unit record |
| Allocated shared cost | 10 | Documented allocation assumption |
| Minimum contribution | 15 | User-selected scenario |
| Price floor | 70 | Before indirect tax |
Keep floor, target price and market response separate
| Question | Answer owner |
|---|---|
| What should this entered scenario at least recover? | Price-floor calculation |
| What price produces a selected margin? | Target-margin calculation |
| What will customers accept? | Customer evidence and market testing |
Methodology used
- Target Margin & Pricing methodology — Margin101
Related tools
- Minimum Profitable Price Planner
Protect a negotiation floor
- Target Margin & Pricing Planner
Set a price for a target gross margin