Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Setting a price by adding a flat markup to cost and calling it a target margin produces two different prices, and the gap widens as the target climbs. A $60 item marked up 40% sells for $84; priced to actually deliver a 40% margin, it has to sell for $100. Confuse the two and a growing catalog quietly prices itself thin, because every item under-earns by the same percentage error, compounding across volume.
Before you rely on it
What to check
Divide contribution by the selling price, not by the cost. That division, not the markup formula, is what a true margin target requires.
The common error
Where people go wrong with target margin pricing calculator
Treating "40% margin" as "add 40% to cost." Markup and margin measure the same dollar gap against two different denominators, and swapping them systematically undercharges on every unit sold at the higher end of a catalog.
Sensitivity evidence
How variable cost per unit changes the required selling price
| Variable cost per unit | Required selling price | Unit contribution | Units to cover fixed costs |
|---|---|---|---|
| $48 | $80 | $32 | 1,562.5 |
| $54 | $90 | $36 | 1,388.9 |
| $60worked example | $100 | $40 | 1,250 |
| $66 | $110 | $44 | 1,136.4 |
| $72 | $120 | $48 | 1,041.7 |
Every input, tested
Which input moves the required selling price most
| Input | Tested from | To | Required selling price at each end | Swing |
|---|---|---|---|---|
| Variable cost per unit | $54 | $66 | $90 to $110 | $20 (20%) |
| Target gross margin | 38.0% | 42.0% | $97 to $103 | $6.67 (6.7%) |
| Monthly fixed costs | $45,000 | $55,000 | $100 to $100 | none |
Two variables at once
Required selling price by variable cost per unit and target gross margin
| Variable cost per unit \ Target gross margin | 36.0% | 40.0% | 44.0% |
|---|---|---|---|
| $48 | $75 | $80 | $86 |
| $54 | $84 | $90 | $96 |
| $60 | $94 | $100 | $107 |
| $66 | $103 | $110 | $118 |
| $72 | $113 | $120 | $129 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Variable cost per unit | $60 |
| Target gross margin | 40.0% |
| Monthly fixed costs | $50,000 |
| Required selling price | $100 |
| Unit contribution | $40 |
| Units to cover fixed costs | 1,250 |
Where the inputs come from
Variable cost per unit is what each additional unit costs you: materials, direct labor, packaging, shipping and payment fees. Target gross margin is the share of the selling price you want to keep after variable costs, expressed as a percent of price. Monthly fixed costs are the costs that do not change with volume, used to find the units needed to break even. Get the variable cost from actual recent purchase records.
When the result stops applying
The price assumes you sell at the list price, but discounts, returns and promotions reduce the average realized price, so leave room. Costs change with volume, and the fixed cost per unit falls as you sell more. Customers judge value, not your cost, so a cost-plus price can be too high or leave money on the table.
What to compare it with
Check the same figures from the markup side on the markup calculator and confirm the volume with the break-even and profit goal pages. The gross margin calculator shows the result of the price you pick. Test prices with a small group of customers before changing everything.
People also ask
Frequently asked questions
Why is margin pricing different from markup pricing?
A 40% markup on cost gives a 28.6% margin, not 40%. To earn a 40% margin, divide cost by 0.6, which raises the price further.
Should I always price to a target margin?
It is a useful floor, but customer willingness to pay and competitors matter too. Price at or above the floor and adjust to the market.
How do discounts affect the margin?
Discounts come straight out of the margin, so a 10% discount on a 40% margin product cuts profit per unit by roughly a quarter, requiring more volume to break even.