Target ROIC Minimum Selling Price Calculator
Cost-plus pricing usually adds a markup and ignores the capital that a product line consumes. This calculator starts from the return required on that capital and works back to the price that delivers it.
Your numbers
Net fixed assets plus allocated working capital (receivables, inventory less payables).
Your results
Single-period, steady-state view. Market prices may not allow this price; use it to judge whether a product line can ever earn its cost of capital.
Minimum price vs target ROIC
Sweeps Target after-tax ROIC from 4 to 30, holding your other inputs fixed.
Product line return analysis
Optional: discuss measuring capital employed and margin by product line from ERP data.
Optional. The tool and every export work without this. No spam.
How to use it
Enter the capital employed in the line (fixed assets plus allocated working capital), the after-tax return you want, tax rate, annual volume, variable cost per unit and annual fixed cost. The tool computes the required operating profit, the break-even price and the minimum price at which the line earns the target. Compare that price with the market and with your current quote.
The method behind it
Required NOPAT equals capital times target ROIC. Required EBIT equals NOPAT divided by one minus the tax rate. The price must cover variable cost, fixed cost and that EBIT, spread over expected volume.
- Min price = (variable cost x units + fixed cost + required EBIT) / units.
- Operating margin = EBIT / revenue; ROIC = margin x capital turnover (before tax adjustment).
- Capital-light lines can earn the target at lower margins.
- Volume is a key risk: a lower volume raises the required price.
Common mistakes
Teams often leave out working capital, so that long payment terms and high inventory lines look better than they are. Others use book value of heavily depreciated assets, which understates capital and flatters returns; consider replacement value for long-lived equipment. Also be careful with fixed cost allocation: charge only costs that disappear if the line is dropped, or allocations will distort the answer.
Frequently Asked Questions
What is ROIC?
Return on invested capital is net operating profit after tax divided by the capital invested in operations. It measures how well a business turns capital into profit and should exceed the cost of capital to create value.
Which ROIC target should I set?
At minimum, your WACC. Many manufacturers set a target a few points above it to cover risk. Use the WACC calculator on this site to derive a rate and then add a margin.
How do I allocate capital to a product line?
Include assets used mostly by the line, a share of shared equipment by machine hours, plus the working capital the line ties up through receivables and inventory net of payables.
What if the market price is lower?
Then the line cannot earn the target at current volume. Options include raising volume to spread fixed cost, cutting variable cost, reducing capital through inventory and terms, or exiting the line.
We can help connect inventory, receivables and asset data from your ERP so capital employed by product line is measured rather than estimated.
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