If you’ve built your pricing strategy around “cost plus,” you’re not alone. It’s a simple, logical place to start. Tally up your costs, add a margin, and you’re done. Easy, right? The uncomfortable truth is that this approach is starting to fall apart in today’s environment, and it’s putting pressure on small product-based businesses across Aotearoa. Margins are tighter, customers are more selective, and retailers? They’ve never been pickier.

So, if you’ve ever thought “My margin used to work, but now there’s nothing left,” or “I’m selling more but making less,” it might be time for a pricing reset.

Let’s dig into what’s going wrong, and what you can do about it.

What is Cost-Plus Pricing, and Why It’s Not Holding Up Anymore?

Cost-plus pricing is the classic “add 40% to my costs” model. The idea is that by marking up your input costs, you’re guaranteed a profit. The reality? It rarely works like that, especially in FMCG (fast-moving consumer goods).

Here’s why it’s getting harder:

• You’re underestimating costs. Freight, packaging, storage, and even retailer terms often get overlooked. A “healthy margin” evaporates fast when you factor in free fills, promo funding, or volume rebates.
• Your margin doesn’t match the category. Retailers expect specific margins by category. If you don’t know what the margin hurdle is you could be pricing yourself out of contention, or into trouble.
• Your RRP (recommended retail price) might not make sense to the shopper. Just because your maths says $5.90 doesn’t mean shoppers will agree. And in tough economic times, price sensitivity is real.

5 Questions Every Business Owner Should Ask Before Setting Price

Whether you're a startup launching your first SKU or a seasoned operator preparing for a range review, these questions will save you time, and possibly your business:

1. What are my true costs including everything from freight to free samples and price discounts?
2. What gross margin am I left with after retailer margin?
3. What price does the category expect - and can my brand support it?
4. Am I building in profit to fund marketing, growth, and future investment?
5. If my costs go up, do I have room to absorb it, or will I have to panic hike prices later?

What to Do Instead: Smarter, Strategic Pricing Moves

Let’s not throw the calculator out entirely, just upgrade how you use it. Here’s what to focus on:

1. Start with Value, Not Just Cost

Work backwards from what the market will pay. What are similar products selling for? What does the shopper expect to pay for your type of product? If your product has a point of difference (like clean ingredients, functional benefits, or sustainability claims), then own it, but be sure you can defend it at shelf.

2. Build in Fat - Then Test It

Every growing business needs margin “fat” to absorb shocks. That might mean starting with a 60% margin instead of 40%. Don’t assume you can always pass cost increases on, plan to protect your margin instead.

3. Model Different Scenarios

Use a basic spreadsheet to test multiple pricing scenarios. What happens if your ingredient costs rise 10%? What if your retailer asks for an extra 5% trade spend? What does that do to your bottom line?

4. Align Pricing With Channel Strategy

Your direct-to-consumer pricing can’t just be “same as supermarket.” You need to build enough margin in your wholesale price to cover trade spend, promotions, and agency support. Too many brands set their retail and wholesale pricing too close together, then get stuck when retailers want margin they simply can’t offer.

5. Don’t Wait for your Annual Accounts

Pricing isn’t just a finance task, it’s a business strategy. Waiting until year-end to realise your products aren’t profitable is a recipe for burnout. Review your pricing quarterly, especially if you’re launching new products or scaling up.

A Note to the Optimists

If this sounds like a harsh reality check, good. Because pricing should feel uncomfortable. It’s where value meets vulnerability and it’s one of the most powerful levers in your business.

But here’s the good news: once you get it right, everything else starts working better. You can afford better packaging. You can fund marketing without fear. You can grow with confidence, not crossed fingers.

Your pricing strategy doesn’t have to be a guessing game or a guilt trip. It just needs a bit more rigour than “cost plus 40%.”

TL;DR (Too long; didn’t read)?

Here's Your Pricing Health Checklist:

✅ I know my full cost breakdown

✅ I understand what margin my retailers expect

✅ My RRP makes sense to the shopper

✅ I’ve modelled margin at full price and promo price

✅ I have a clear reason why I charge what I do

Need help pressure testing your pricing model? Ask your chartered accountant to run a margin model with you, or book a working session with someone who understands retail mechanics, margin maths, and market realities.

Because the quickest way to go broke in business? Is to price for hope, not for profit.

-       Janine Chamley https://www.pitchfork.co.nz

We’re delighted to bring you a guest blog from Janine Chamley, at Pitchfork FMCG Consultancy. In her 25 years+ of working across a huge range of brands and business, she’s learnt a whole lot about what works (and what doesn’t) along the way. Her career has been a journey from category analyst through to Head of Marketing, and Global Innovation & Category Manager for some of New Zealand’s largest organisations. Switching sides to work as a retail Category Manager (Buyer) for over three years, and managing a $30m+ portfolio of brands & suppliers - gave her the insights on where small brands often get lost dealing with big retailers.

JDW Chartered Accountants Limited is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists. We partner with our clients throughout the year, not just at year end.

An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.