Procurement tools
Should-cost model
Rebuild a product’s cost from materials and labour up, add a fair margin, and see exactly how far a supplier’s quote sits from what it should cost.
Formula
Should-Cost = (Material + Labour + Overhead + Packaging) ÷ (1 − Margin %)
Cost build-up
Raw material cost
Per unit, at current market rates
₹
Labour cost
Processing time × loaded labour rate, per unit
₹
Manufacturing overhead
As a % of material + labour
%
Packaging & outbound logistics
Per unit
₹
Reasonable supplier margin
Net margin on top of full cost
%
Comparison
Supplier’s quoted price
What they’re actually charging per unit
₹
Should-cost per unit
₹0
Verdict–
Quote gap–
Gap %–
Should-cost vs. quoted price
Should-cost is a starting point for negotiation, not a demand — it gives you a defensible number to open a conversation instead of negotiating on price alone. A gap under 10% is usually within normal supplier margin variation; a gap above 20% is worth a structured cost review or a second-sourcing conversation.
Frequently asked questions
What is a should-cost model?
It rebuilds what a product ought to cost from raw materials, labour, overhead and a reasonable supplier margin, so you can compare it against a quoted price with evidence rather than a gut feeling.
How is should-cost different from a market price benchmark?
A market benchmark compares prices across suppliers; a should-cost model builds the price up independently, which works even with only one supplier or no market data.
What margin should I assume for the supplier?
8–15% net margin is a common starting assumption for manufactured components; adjust based on what you know about the category and supplier.
Is this should-cost calculator free to use?
Yes. It runs entirely in your browser, needs no account, and nothing you enter is stored or transmitted.