How to Build a Should-Cost Model for a Food Product (Step by Step)

Ever wondered how a 120% spike in cocoa prices translates into the cost of your chocolate chip cookies?

A should-cost model answers that question. It estimates what a product ought to cost, built up from its ingredients and production costs, instead of taking a supplier’s quote or last year’s invoice as the starting point. Procurement teams use it to check supplier price increases, set budgets and walk into negotiations with their own number.

In food, a should-cost model has one hard part: most of the cost sits in ingredients that trade on commodity markets, so the model goes stale as fast as those prices move. This guide shows how to build one for a food product, using a loaf of bread as the example, and how to keep it live with Vesper Cost Models.

What is a should-cost model?

A should-cost model is a bottom-up estimate of a product’s cost. For a food product it adds up five layers:

1. Ingredients: each raw material’s share of the recipe, priced at its market benchmark
2. Packaging: film, cartonboard, trays and cases per unit
3. Energy: gas and electricity for baking, cooling or drying
4. Conversion costs: labor, overhead, maintenance and depreciation
5. Margin: what a supplier or a manufacturer typically earns on top

Compare the total with the price you pay. A gap tells you where to dig: a supplier passing on an ingredient increase that never happened, a margin above the industry norm, or a recipe that has drifted from what you think you are buying.

A should-cost model is only as good as its inputs. A spreadsheet priced in January can be badly wrong by summer: cocoa more than doubled between February and July 2026. That is why the model below links every ingredient to a live price series.

How to build a should-cost model in Vesper

Vesper’s should-cost model tool, Cost Models, does the five layers above in one place:

• Ingredient costs from Vesper’s price database, weighted by your recipe
• Non-ingredient costs like labor, energy, overhead and margin, from industry data
• Live price tracking, so the model recalculates whenever an ingredient price moves

The rest of this guide walks through it step by step. For the wider method, including cost driver analysis and how to use the result with suppliers, see our guide to should-cost analysis.

Adding cost models to your dashboard

Before we dive into building, let’s get Cost Models added to your Vesper dashboard.

You’ll find Cost Models in your main search function. Simply search for “Cost Model” and you’ll see it appear with a “New Feature” badge. Click on it and you can add it to either a new dashboard or your existing one.

Once added, you’ll see the familiar Vesper widget structure with all the functionality you’re used to – time frame sliders, download options, and sharing capabilities.

Two ways to build your first cost model

Just like there are multiple routes to the same destination, Vesper offers two approaches to building cost models:

1. Start with a pre-built template (fastest option)
2. Build completely from scratch (maximum customization)

Let’s explore both methods using a bread cost model as our example.

Method 1: Using pre-built templates

Step 1: Access template library

The quickest way to get started is with Vesper’s pre-built templates. You can access these in two ways:

• Click on one of the templates displayed below the main interface;
• Or use the “Select model” dropdown in the upper left corner and scroll all the way down to see all available templates

For our bread example, we’ll select the “Bread” template from the available options.

Step 2: Customize your template

Once you’ve selected the Bread template, click the “Edit” button in the top left corner.

Now you can customize several elements:

Unit settings:

• Unit size: Choose your preferred measurement (1 metric ton, 100kg, etc.)
• Currency: Select EUR, USD, or your preferred currency

Raw ingredients: The template comes pre-loaded with typical bread ingredients like:

• Wheat flour (60% of recipe)
• Butter (2% of recipe)
• Salt (1% of recipe)
• Sugar (3% of recipe)

You can adjust these percentages or swap ingredients entirely. For example, if you want to change from European butter prices to Eastern European pricing, simply click on the ingredient dropdown and select your preferred price benchmark.

Non-ingredient costs: This is where the magic happens. Select your country and industry – in our case, “Europe” and “Bakery Goods Production.”

The system automatically populates industry-standard costs for:

• Labor costs: 22.4% of total product cost
• Energy costs: 1.9% of total product cost
• Overhead costs: 12.7% of total product cost
• Profit margin: 9.8% of total product cost

These percentages come from comprehensive industry data sourced by IBISWorld from national statistical offices across 36 European countries, including data from:

• France’s INSEE (National Institute of Statistics and Economic Studies)
• Germany’s Destatis (Federal Statistical Office)
• UK’s ONS (Office for National Statistics)
• Italy’s ISTAT (Italian National Institute of Statistics)

The data covers everything from repair and maintenance costs to telecommunications, R&D expenses, and temporary employee costs, giving you a complete picture of manufacturing expenses.

Step 3: Save your model

Give your model a descriptive name – let’s call it “Bread Recipe 1” and click the save button in the right corner.

Congratulations! You’ve just created your first cost model.

Method 2: Building from scratch

For maximum flexibility, you can build a completely custom model.

Step 1: Create new model

Click on the dropdown menu in the top left corner and select “Create new.”

Step 2: Configure basic settings

Set up your model parameters:

• Name: “Custom Bread Recipe”
• Unit size: 1000 kg
• Currency: EUR

Step 3: Add ingredients

Now comes the fun part – building your recipe:

Add Vesper products: Click “Add product” to select from Vesper’s extensive price database. Search for wheat flour and you’ll see various options like Soft wheat flour, 14% pro (EU - AGM) with current pricing.

Add custom products: Click “Add custom product” to input your own pricing data. This is perfect when you have negotiated rates or quotes from specific suppliers that differ from market benchmarks.

For each ingredient, specify:

• Percentage of total recipe
• Weight in kg (automatically calculated)
• Cost per unit

Step 4: Configure non-ingredient costs

Just like with pre-built templates, select your country and industry to automatically populate manufacturing costs. The system draws from the same comprehensive database to give you accurate industry benchmarks.

Step 5: Save, export or duplicate

Save your model and choose your preferred export format: PNG, SVG, or JPEG. You can also duplicate your model by clicking on the three dots in the top right corner to compare multiple cost models in one overview.

Understanding your cost model results

Once your model is built, you’ll see a comprehensive breakdown showing:

Total unit price: The complete should-cost per unit (e.g., €1,238 per metric ton)

Cost composition split:

• Raw materials: 53.2% of total cost
• Non-ingredient costs: 46.8% of total cost

This split immediately shows you whether your product is more sensitive to commodity price fluctuations or manufacturing cost changes.

Advanced features and analysis

Time frame analysis

One of the most powerful features is the ability to analyze cost trends over time. You can:

• Adjust time frames: View data from 3 months up to 10 years
• Hover for details: See exact pricing on specific dates
• Track changes: Monitor year-over-year (YoY), month-over-month (MoM), and quarter-over-quarter (QoQ) changes

For example, you might see that your bread costs decreased by 1.27% year-over-year while energy costs increased by 17.99% – giving you precise insight into cost drivers.

Component-level visibility

The detailed breakdown shows exactly how each ingredient impacts your total cost:

• Wheat flour (60%): €501 per unit, -2.34% change
• Butter (2%): €138 per unit, -3.50% change
• Sugar (3%): €18 per unit, +0.85% change

This granular view helps you identify which ingredients deserve the most attention in your procurement strategy.

Sharing and collaboration

Cost models can be easily shared with your team through:

• Direct exports in multiple formats
• Dashboard duplication to compare scenarios side-by-side
• API integration for automated updates to your existing systems
• Excel plugin for seamless data integration

Now available

Two of the enhancements this article originally listed as upcoming have since shipped:

1. Cost model forecasting: Project costs up to a year ahead by toggling from historical to forecast view
2. Self-service model sharing: Share saved cost models directly with coworkers, with view-only or edit access

Upcoming Enhancements

Vesper is continuously improving Cost Models. Still to come:

1. Fixed unit costs: Add fixed price values for non-ingredient costs to reflect real-world manufacturing contracts
2. Enhanced UI/UX: Clearer separation of ingredient and non-ingredient costs for easier model creation

Why should-cost models matter for procurement

Should-cost models solve three critical challenges every procurement manager faces:

1. Setting realistic negotiation goals Instead of guessing what price increase is reasonable, you can see exactly how commodity movements should impact your products.

2. Negotiating with confidence Enter negotiations armed with data-backed justification for your position, whether you’re buying or selling.

3. Justifying complex price movements When cocoa prices spike 120%, you can instantly show stakeholders the precise impact on your chocolate products, no more spreadsheet gymnastics required.

Getting started today

Building your first cost model takes less than 5 minutes with Vesper’s intuitive interface. Whether you start with a template or build from scratch, you’ll have actionable cost intelligence that transforms how you approach procurement decisions.

The key is to start simple – pick one product you buy regularly and build a basic model. As you get comfortable with the interface, you can create more sophisticated models and explore advanced features like scenario planning and origin optimization.

Remember, in today’s volatile commodity markets, having precise cost visibility is essential for staying competitive and making informed decisions that protect your margins.

Ready to build your first should-cost model? Log into your Vesper dashboard and give it a try.

Your future self will thank you.