From cost to price in one step
You know what an item costs you. The question is what to charge. This calculator sets the selling price either from a markup on cost or from the gross margin you want to keep, and it shows the other ratio so you never confuse the two.
The two pricing formulas
- Price from markup: price = cost × (1 + markup %)
- Price from target margin: price = cost ÷ (1 − margin %)
Both lead to the same profit for the same price; they simply express it differently. A 50% markup equals a 33.33% margin, and a 100% markup equals a 50% margin.
Worked example: cost $40
With a 50% markup
- Price: 40 × 1.5 = $60.
- Profit: $20 per unit.
- Resulting margin: 20 ÷ 60 = 33.33%.
With a 40% target margin
- Price: 40 ÷ (1 − 0.40) = 40 ÷ 0.60 = $66.67.
- Profit: $26.67, which is a 66.67% markup.
The classic mistake is to take 40% of the cost and add it on: $40 × 1.4 = $56. That price only gives a 28.6% margin, well short of the 40% you wanted.
Selling price by markup
| Markup | Price (cost $40) | Profit | Gross margin |
|---|---|---|---|
| 20% | $48.00 | $8.00 | 16.67% |
| 33.33% | $53.33 | $13.33 | 25.00% |
| 50% | $60.00 | $20.00 | 33.33% |
| 75% | $70.00 | $30.00 | 42.86% |
| 100% | $80.00 | $40.00 | 50.00% |
| 150% | $100.00 | $60.00 | 60.00% |
Markup and margin conversion
- margin = markup ÷ (1 + markup)
- markup = margin ÷ (1 − margin)
So a 25% margin needs a 33.3% markup, and a 60% margin needs a 150% markup.
Sales tax comes on top
US prices are normally shown before sales tax, which is added at the register. The optional sales tax field shows the shelf total a customer pays. Combined state and local rates range from zero in states such as Oregon or Delaware to around 9–10% in parts of Louisiana, Tennessee or California. The tax is collected for the state and never counts as profit.
Choosing a markup
- Keystone pricing (100% markup, price = 2 × cost) is a long-standing rule of thumb in apparel and gift retail.
- Groceries and electronics run on far thinner markups and rely on volume.
- Services and handmade goods often need higher markups because labor is part of the cost.
Whatever the industry, check the result against your break-even point: the markup has to cover overheads such as rent, payroll and card fees, not just the purchase price, before you make a cent of profit.