Should-cost calculator for industrial equipment
Build an independent cost estimate for custom or single-source equipment from material, bought-out content, labour, machine time, overhead, SG&A and margin — then compare it with the quotation you received. Free, supplier-neutral and no sign-up.
Cost build-up inputs
Modelled cost
| Direct material (incl. scrap allowance) | $6,336 |
| Bought-out components | $38,000 |
| Direct labour | $14,560 |
| Machine / process cost | $8,100 |
| Factory overhead | $20,394 |
| SG&A recovery | $10,487 |
| Supplier margin | $11,745 |
| Packaging and freight | $9,000 |
| Should-cost ex-works | $109,622 |
| Delivered should-cost | $118,622 |
Variance vs quotation
+$121,378 (+102.3%)
The quotation is materially above the modelled cost. Request an open-book breakdown before negotiating.
Quick answer
A should-cost model estimates what equipment should reasonably cost by building the price up from material, bought-out components, labour, machine time, factory overhead, SG&A and supplier margin — an independent estimate rather than a comparison of competing quotes. Use it where market benchmarks are weak: custom, single-source or low-competition equipment.
Inputs that matter
- Purchased material weight (kg)
- Delivered material price (currency/kg)
- Scrap / offcut allowance (%)
- Direct labour hours (hours)
- Loaded labour rate (currency/hour)
- Machine / process hours (hours)
- Machine hour rate (currency/hour)
- Bought-out components (currency)
- Packaging and freight (currency)
- Factory overhead (% of conversion cost)
- SG&A recovery (% of factory cost)
- Supplier margin (% of total cost)
- Quoted price (currency)
How it is calculated
Direct material = weight x price/kg x (1 + scrap%). Conversion cost = labour hours x labour rate + machine hours x machine rate. Factory overhead = conversion cost x overhead%. Factory cost = direct material + bought-out + conversion + overhead. SG&A = factory cost x SG&A%. Total cost = factory cost + SG&A. Margin = total cost x margin%. Should-cost ex-works = total cost + margin. Delivered should-cost = ex-works + packaging and freight. Variance = quoted price - delivered should-cost.
What the result means
- Cost build-up by line — Material, bought-out, labour, machine, overhead, SG&A, margin, freight
- Should-cost ex-works
- Delivered should-cost — At the same Incoterm as the quotation
- Variance vs quotation — Positive means the quote sits above the modelled cost
What is not included
- Not a market benchmark: it derives an independent estimate from cost components rather than comparing competing quotes.
- Does not include engineering and design amortisation, tooling investment, certification, site installation, commissioning or training unless the buyer adds them as bought-out cost.
- Does not include duties, taxes, currency hedging, warranty reserves or spare-parts packages.
- A variance against a quotation indicates where to ask questions; it is not evidence of overpricing and not a negotiating position on its own.
- Single-currency model. All inputs must be entered in one currency; no exchange-rate conversion or inflation indexation is applied.
- Pre-tax model. Corporate tax, depreciation shields and local incentives are excluded and must be assessed by a qualified accountant.
What must be confirmed
This is a preliminary planning estimate. Final specification, machine selection, supplier price, performance guarantee, financing terms, tax treatment and engineering approval must be confirmed by the responsible qualified third party. Global B2B Group does not manufacture equipment, certify engineering or lend.
Next step
Carry the result into a structured RFQ: Target cost range, Cost-breakdown request (open-book lines), Incoterm and currency basis, Bought-out component scope. You review and approve every transferred value — nothing is submitted automatically.
Engine version 1.2.0 · reviewed 2026-08-21 · full methodology
Editable should-cost template
The blank CSV template mirrors this calculator: a project header (supplier country, currency, Incoterm, quantity), the five cost sections, the variance comparison, and the six questions to send a supplier when the variance is large. Open it in Excel or Google Sheets, keep one file per quoted package, and attach it to the tender file so the evaluation committee can see the assumptions behind the target cost.
Frequently asked questions
What is a should-cost calculator?
It is a cost build-up tool that estimates what a piece of equipment should reasonably cost by adding direct material, bought-out components, labour, machine time, factory overhead, SG&A and supplier margin — instead of comparing against other quoted prices.
How do you calculate should-cost for industrial equipment?
Start with net material weight and price per kg plus a scrap allowance, add bought-out components, add direct labour hours and machine hours at loaded rates, apply factory overhead on conversion cost, add SG&A on factory cost, then add supplier margin and packaging and freight to reach a delivered should-cost.
What overhead and margin percentages are realistic for machine builders?
Buyers commonly model factory overhead at 60–150 percent of conversion cost, SG&A at 8–18 percent of factory cost, and net margin at 8–20 percent for custom equipment. These are planning ranges — verify them against the supplier's country, plant size and order book before using the result.
Is should-cost analysis the same as a price benchmark?
No. A benchmark compares competing quotations; should-cost derives an independent estimate from cost components. Should-cost is most valuable exactly where benchmarks are weak — custom, single-source or low-competition equipment.
What does a large variance against a quotation mean?
It means the model and the quotation disagree about scope, rates or content. Treat it as a list of questions — material grade and weight, bought-out brands, engineering amortisation, Incoterm inclusions — not as evidence of overpricing.
Can I use the result in negotiation?
Use it to request an open-book cost breakdown and to set a target cost range in the RFQ. Presenting a modelled number as a demand without validating scope usually produces a re-scoped quotation rather than a lower price.
Turn the target cost into an RFQ
Carry the target cost range, Incoterm and currency basis, and the open-book cost-breakdown request straight into a structured RFQ. You review every value before anything is sent — free for buyers.
Open the RFQ builderEducational planning tool. Global B2B Group is a supplier-neutral procurement platform: we do not manufacture equipment, do not lend, and this model is not a valuation or a market benchmark.