Pricing Strategy Calculator
Calculate your recommended retail price based on your target profit margin or markup. Understand the exact difference between gross margin and markup.
Pricing Inputs
What's the difference?
Margin is the percentage of the selling price that is profit. A 50% margin means half of every dollar you make is profit. (Price = Cost ÷ (1 - Margin))
Recommended Pricing
Retail Price
Dollars earned per unit
Your initial cost
Pricing Metrics
Margin vs Markup: The Biggest Pricing Mistake
One of the most common mistakes new business owners make is confusing margin and markup. While they both refer to profit, they are calculated differently and confusing them can completely wipe out your intended profits.
What is Markup?
Markup is a percentage added to your cost. It looks backward at what you spent.
Example:
- Cost: $10
- Desired Markup: 50%
- 50% of $10 is $5
- Retail Price: $15
What is Margin?
Margin (specifically Gross Margin) is the percentage of the final sale price that is profit. It looks forward at what you are earning.
Example:
- Cost: $10
- Desired Margin: 50% (Meaning you want 50% of the sales price to be profit)
- Math: Price = $10 / (1 - 0.50)
- Retail Price: $20
Why Retailers Use Margin
Most professional retailers (and your accounting software) talk in margins, not markups. This is because margins give you a clear picture of profitability relative to revenue. If you sell a product for $100 and have a 30% margin, you know instantly you made $30 in gross profit.
The Danger: If your accountant tells you that you need a "50% margin" to break even on overhead, but you mistakenly apply a "50% markup" to a $50 product (selling it for $75 instead of $100), your true margin is only 33%—meaning you are losing money on every sale.
Frequently Asked Questions (FAQ)
Can margin be over 100%?
No, gross margin can never logically be 100% or higher unless your cost of goods sold (COGS) is exactly $0.00. However, markup can be infinite (e.g., a 500% markup).
What is keystone pricing?
Keystone pricing is a retail rule of thumb that involves doubling the wholesale cost to determine the retail price. This is a 100% markup, which equates to a 50% gross margin.
The tools and calculators provided on The Simple Toolbox are intended for educational and informational purposes only. They do not constitute financial, legal, tax, or professional advice. While we strive to keep calculations accurate, numbers are based on user inputs and standard assumptions that may not apply to your specific situation. Always consult with a certified professional (such as a CPA, financial advisor, or attorney) before making significant financial or business decisions.
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