Cost price: how to calculate it to set your rates

What is cost price?

The cost price represents the total cost of producing a product or delivering a service. It's the sum of all direct and indirect expenses necessary for your business.

Cost price should not be confused with selling price. The cost price corresponds to your expenses, whilst the selling price includes a margin that allows you to generate profit.

Knowing your cost price precisely is essential for setting profitable rates. Without this data, you risk selling at a loss without even realising it.

Concrete example: a freelance graphic designer spends 3,000 CHF per month on fixed costs (office, software, insurance) and invoices 120 hours. Their minimum hourly cost price is already 25 CHF, even before adding their own salary.

The components of cost price

To calculate your cost price correctly, you need to identify two main categories of expenses: fixed costs and variable costs.

Fixed costs remain stable regardless of your business volume. Whether you sell 10 or 100 units, these expenses don't change.

Variable costs, on the other hand, evolve proportionally to your production or sales. The more you produce, the more these costs increase.

A third useful distinction contrasts direct costs (attributable to a specific product) and indirect costs (overheads to be allocated across several products or services).

Mastering these categories allows you to analyse your cost structure in detail and identify levers to improve your profitability.

Fixed costs

Fixed costs are the expenses you pay regularly, regardless of your turnover. They constitute the incompressible base of your expenditure.

In Switzerland, the main fixed costs include:

• Office or workshop rent (500 to 2,000 CHF/month depending on location)
• Professional and public liability insurance (100 to 300 CHF/month)
• Software and tool subscriptions (50 to 200 CHF/month)
• Accounting or fiduciary fees (100 to 500 CHF/month)
• Fixed social security contributions (AVS, pension fund)
• Depreciation of IT equipment and assets

For freelancers, don't forget to include your own minimum salary in fixed costs. This is the most common mistake made by new self-employed workers.

Variable costs

Variable costs fluctuate directly with your level of activity. The more you produce or sell, the more these expenses increase.

Typical examples of variable costs:

• Raw materials and supplies consumed
• Ad hoc subcontracting or external freelancers
• Sales commissions
• Delivery and shipping costs
• Packaging
• Bank charges proportional to transactions

For a service business, variable costs are often limited: client travel, specific tools per assignment, or occasional subcontracting.

For a product sales business, variable costs generally represent a significant portion of the cost price, particularly the purchase of goods or production.

Direct and indirect costs

Direct costs are directly attributable to a specific product or service. For example: the materials used to manufacture a piece of furniture, or the working hours devoted to a particular client project.

Indirect costs concern several products or services simultaneously. They must be allocated according to a logical allocation key: rent, electricity, insurance, administrative salaries.

Several methods exist for allocating indirect costs:

• Allocation in proportion to time spent on each project
• Allocation proportional to turnover generated by product
• Allocation according to number of units produced

Choose the method most representative of your operational reality. The important thing is to be consistent over time to compare your results.

Cost price calculation method: step by step

Calculating your cost price doesn't require advanced accounting skills. You simply need to follow a structured method and gather the right information.

Here's the approach in four simple steps:

1. List all your annual fixed costs
2. Identify your variable costs per unit produced or sold
3. Calculate the unit cost price by combining these two elements
4. Add your margin to determine your selling price

This method applies to both products and services. For service provision, the calculation unit will generally be the hour or the project.

Take the time to complete each step properly. An accurate calculation today will save you unpleasant surprises tomorrow.

Step 1: List all your annual fixed costs

Start by comprehensively listing all your fixed expenses over a full year. This step requires rigour, but it's crucial.

Review your bank statements from the last 12 months and your VAT returns to ensure you don't forget any recurring expenses.

Summary table of annual fixed costs:

• Rent: 18,000 CHF (1,500 CHF × 12 months)
• Insurance: 2,400 CHF
• Subscriptions and software: 1,800 CHF
• Accounting: 3,000 CHF
• Telephony and internet: 960 CHF
• Fixed social security contributions: 8,000 CHF
• Depreciation: 2,000 CHF

Total annual fixed costs: 36,160 CHF

Don't forget to include your own minimum remuneration if you're self-employed.

Step 2: Identify your variable costs per unit

Now calculate what it costs you to produce or deliver one unit (product, service hour, project).

Example for a physical product:

• Raw materials: 15 CHF
• Packaging: 2 CHF
• Average delivery costs: 8 CHF
• Unit variable cost: 25 CHF

Example for a consultant:

If you plan to invoice 1,200 hours per year and have 6,000 CHF in annual variable costs (travel, specific tools), your hourly variable cost is 5 CHF (6,000 ÷ 1,200).

For services, this cost is often low, but don't neglect it in your overall calculation.

Step 3: Calculate the unit cost price

You now have all the elements to calculate your unit cost price. Here's the formula:

Unit cost price = (Total fixed costs ÷ Planned volume) + Unit variable costs

Concrete example:

A freelancer with 36,000 CHF in annual fixed costs plans to invoice 1,200 hours. Their variable costs are 5 CHF/hour.

• Fixed costs per hour: 36,000 ÷ 1,200 = 30 CHF
• Variable costs per hour: 5 CHF
• Hourly cost price: 35 CHF

This amount represents the strict minimum to charge to cover your expenses. Any rate below this generates a loss.

Step 4: Add your margin to set the selling price

Knowing your cost price isn't enough: you must add a margin to generate profit and finance the growth of your business.

The margin can be expressed as a percentage or in francs. Formula: Selling price excl. VAT = Cost price × (1 + margin rate)

Typical margins in Switzerland:

• Consulting services: 40 to 60%
• Retail trade: 30 to 50%
• Catering: 60 to 70%
• Crafts: 30 to 40%

Example: with a cost price of 35 CHF and a 50% margin, your rate excl. VAT is 52.50 CHF. Add VAT (8.1%) to obtain the price incl. VAT: 56.75 CHF.

To explore rate setting in more depth, consult our guide on how to calculate and set your freelance rates.

Practical calculation table

A simple Excel or Google Sheets table allows you to centralise all your calculations and adjust them easily.

Recommended structure:

Cost type	Annual amount	Unit cost
Fixed costs
Rent	18,000 CHF	15 CHF/h
Insurance	2,400 CHF	2 CHF/h
Total fixed costs	36,000 CHF	30 CHF/h
Variable costs		5 CHF/h
Cost price		35 CHF/h

Adapt the rows according to your business and update your data regularly.

From cost price to break-even point

Knowing your cost price allows you to calculate your break-even point: the minimum volume of activity to cover all your expenses.

Break-even point formula:

Break-even point = Fixed costs ÷ (Unit selling price − Unit variable costs)

Concrete example:

• Annual fixed costs: 36,000 CHF
• Hourly selling price: 80 CHF
• Hourly variable costs: 5 CHF
• Break-even point: 36,000 ÷ (80 − 5) = 480 hours

You must invoice at least 480 hours per year to break even. Beyond that, each hour invoiced generates profit.

Rigorous monitoring of your payments and cash flow is essential to reach this threshold. BePaid helps you track your invoices and receipts in real time.

Common mistakes to avoid

Even with a clear method, certain errors frequently recur in calculating cost price.

Forgetting your own salary: Self-employed workers often neglect to include themselves in fixed costs. Result: they work for free without realising it.

Underestimating indirect costs: Electricity, office supplies, small equipment... These expenses accumulate and weigh on profitability.

Never updating calculations: Your costs evolve (rent increases, insurance rises). Recalculate your cost price regularly.

Basing yourself solely on the competition: Setting your rates by looking at others without knowing your own costs is dangerous. Your cost structure may be very different.

Confusing margin and markup: A 50% margin doesn't mean multiplying by 1.5, but dividing the cost price by 0.5.

Revising your cost price regularly

Your cost price isn't fixed. It evolves with your business and the economic context.

When to recalculate your cost price:

• Significant increase in your expenses (rent, insurance, suppliers)
• Change in business volume impacting your unit fixed costs
• New investments or hires
• Modification of your service offering or product range

Recommendation: review your calculations at least once a year, ideally quarterly for high-growth businesses.

BePaid facilitates this monitoring through data exports, cash flow tracking and payment analysis. You have a clear view to adjust your pricing strategy in real time.

To go further in managing your projects, consult our article on managing costs and margins by project.

Cost price is the cornerstone of profitable pricing. Without it, you're navigating blindly and risk selling at a loss without even realising it. By clearly distinguishing your fixed and variable costs, direct and indirect, you obtain a precise view of what each product or service actually costs you.

The calculation method remains simple: add up all your costs, divide by production volume, then add your margin to define a coherent selling price. Remember to review these calculations regularly, especially when your expenses evolve or your business develops.

Once your rates are set, you still need to invoice efficiently and track your payments. BePaid allows you to create invoices compliant with Swiss standards in just a few clicks, with integrated QR-code and automatic payment tracking. Try our solution free and focus on your profitability rather than your administration.