What is true cost? (and why most makers undercharge)
By Olusegun Osunrinde, Founder, Sentralbee · 4 October 2026
True cost is everything it takes to make and deliver one piece, not just the materials. It adds up four things: materials at the price you paid, labour, running costs such as gas, power, delivery and packaging, and waste such as offcuts. Price below your true cost and you lose money on every sale.
The short version
True cost is what one piece really costs you to make and deliver. It is not just the materials.
True cost = materials + labour + running costs + waste
Most makers price from the materials and a feeling. They forget the gas, the delivery, the offcut on the floor and their own hours. So they get busy, but the money never seems to add up.
What does true cost mean?
True cost means every cost of making one piece, added together. If you sell for less than your true cost, you lose money on that sale, even if it feels like a good price.
It answers one simple question: "What did this piece cost me, really?"
What goes into true cost?
Four things: materials, labour, running costs and waste.
| Part | What it includes | Examples |
|---|---|---|
| Materials | Everything that goes into the piece, at the price you paid | Fabric, lining, flour, butter, timber, screws, varnish |
| Labour | The hours it takes, times what an hour costs you | Cutting, sewing, baking, decorating, assembly |
| Running costs | What it takes to keep working, shared across pieces | Gas, power, generator fuel, delivery, packaging, boxes |
| Waste | Materials you paid for but could not use | Offcuts, mis-cuts, spoiled batches, leftover icing |
Materials
List every material in one piece, with the quantity, at the price you actually paid. Include the small things: thread, buttons, cake boards, brackets. They add up.
If prices change between purchases, use the average price you paid. That is fairer than using only the newest or oldest price.
Labour
Count the hours. Multiply by what an hour costs you. If you pay a tailor or baker per piece, use what you pay. If it is you, decide what you want to earn in a month and divide by your working hours.
Running costs
These are the costs that are easy to forget, because they don't go into the piece:
- Gas for the oven
- Power, or fuel for the generator
- Delivery or a rider
- Packaging, boxes and garment bags
Some belong to one order, like a delivery trip. Others are monthly. Spread monthly costs across the pieces you make in a month.
Waste
The offcut on the floor was paid for. So was the cake layer that cracked. Measure your waste for a few orders, then add your average to every piece.
How do you calculate true cost? A worked example
Here is an example agbada. These are example figures. Your prices will differ.
| Cost | Type | Amount |
|---|---|---|
| Aso-oke, 4.5 yards | Materials | ₦27,000 |
| Lining | Materials | ₦6,500 |
| Embroidery thread | Materials | ₦3,200 |
| Buttons | Materials | ₦1,800 |
| Tailoring, 14 hours | Labour | ₦12,000 |
| Delivery and box | Running costs | ₦3,500 |
| Offcut | Waste | ₦4,300 |
| True cost | ₦58,300 |
If the tailor charged ₦55,000, it would feel like a fair price. The fabric alone is only ₦27,000. But the true cost is ₦58,300, so this order lost ₦3,300.
Look at where the loss came from. The delivery and the offcut come to ₦7,800. Those are the two lines most people leave out.
Why do most makers undercharge?
Because they price from what they can see. The fabric, the flour, the timber are easy to see and easy to remember. The rest is hidden.
The common reasons:
- Running costs are forgotten. Gas, fuel and delivery don't feel like part of the product.
- Waste is ignored. The offcut was paid for, but it is not in the finished piece.
- Their own time is free. Many solo makers don't pay themselves in the price.
- Prices go stale. They costed a product once, then material prices went up.
- They copy a competitor. Another maker's price is based on their costs, not yours.
None of these are about skill. They are about not having the full picture.
How do I set a price from true cost?
Start with the true cost, then add the margin you want to keep:
Price = true cost ÷ (1 − margin)
For the agbada above, with a 30% margin: ₦58,300 ÷ 0.7 = ₦83,286. Round it to ₦83,500.
If you would rather add a fixed amount, for example ₦15,000 on top of cost, that works too. What matters is that you start from the true cost, not the materials. The glossary explains margin and markup in plain words.
What is the difference between true cost and price?
True cost is what the piece costs you. Price is what the customer pays. The gap between them is your profit.
If price is lower than true cost, there is no profit. You are paying the customer to take the piece.
How often should I check my true cost?
Every time you pay a new price for a material. Fabric, butter, timber and fuel all change. A product that paid well in January can lose money by June. Re-cost your best sellers first, since they matter most.
How can I work out my true cost quickly?
Use the free true cost calculator. Add your materials, hours and running costs for one piece, and it shows your true cost and a fair price. In the US and Canada, use the dollar version.
To keep it up to date for every product, Sentralbee does the maths for you:
- Materials with cost, supplier and a low-stock level
- Product costing from a recipe of materials plus labour and extra cost lines you add. The recipe cost is the quantities times the average price you paid for each material.
- Below-cost alerts. If a product now sells below its true cost, the Bee, our built-in AI partner, tells you and suggests a price from your margin rule, either a percentage or a fixed amount.
- A waste log to record offcuts and spoiled batches
Costing is on Pro (₦7,500 a month) and above in Nigeria, and Growth and Scale in the US and Canada. See pricing.
For more, read how to cost a bespoke garment, how to price a wedding cake or how to price custom furniture. Or book a free Clarity Review and we'll cost one of your products with you in 30 minutes.
Questions
What is the difference between true cost and material cost?
Material cost is only what goes into the piece. True cost adds your labour, running costs like gas and delivery, and the waste you paid for but could not use. True cost is always higher.
What is the formula for true cost?
True cost = materials + labour + running costs + waste. Work it out for one piece. Then set your price from it: price = true cost ÷ (1 − margin).
Should I count my own time if I work alone?
Yes. If you don't, your price only pays for materials and you work for free. Decide what you want to earn a month and divide it by the hours you work to get an hourly cost.
How do I include monthly costs like rent and power?
Add up the month's running costs and divide by the number of pieces you make in a month. Add that share to every piece. Re-check it when your volume changes.
How often should I work out my true cost?
Whenever a price you pay changes. Fabric, flour, timber and fuel prices move, and a price that worked last quarter can lose money now. Re-cost your best sellers first.
Is there a free true cost calculator?
Yes. Sentralbee has a free true cost calculator at sentralbee.com/true-cost-calculator/. Add your materials, time and running costs for one piece and it shows the true cost and a fair price.