Pricing & Margin

Pricing and margin: from cost to price and back

Every price starts with what one unit costs you. For a product you buy and resell, that is the wholesale price plus packaging, inbound shipping and any per-order fees. For a product you make, it is materials and your own time per unit. Once you know that number, two percentages describe how far above it your price sits: markup and margin.

Markup compares the profit with the cost, margin compares it with the price. An item that costs $40 and sells for $70 makes $30 of profit — a 75% markup but a 42.9% gross margin. The conversion is fixed: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin). A 100% markup, doubling the cost, is a 50% margin; a 40% margin needs a 66.7% markup. Quoting a markup as if it were a margin can leave you pricing too low.

What is in this section

The profit margin calculator works in three directions: from cost and price to the margin, from cost and a target margin to the selling price, and from a shelf price and a target margin to the most you can pay. The markup calculator turns a cost and a markup percentage into a price and shows the margin that markup really gives. The markup vs margin chart lists markups from 10% to 300% next to their margins. The comparison of markup and margin explains when each is the better tool, and the guide on pricing a product walks through a full example from unit cost to a checked price.

Beyond gross margin

Gross margin covers the cost of the item only. Rent, software, insurance and your own salary have to come out of it too, which is why the pricing guide adds a share of overhead to the unit cost before applying a margin. That share depends on how many units you sell, so a price that works at 500 units a month may not work at 250 — check it against your break-even point whenever volume changes.