Pricing targets for this product
Wondering what price you would need to charge to achieve standard target gross profit margins? Based on your current cost above, here is how you would price it:
| Target Margin | Required Selling Price | Gross Profit |
|---|---|---|
| Enter your numbers above to see this table. | ||
Margin vs. markup: what is the difference?
Many business owners confuse margin and markup, which can lead to underpricing:
- Profit Margin is the percentage of the selling price that is profit. A 40% margin means 40 cents of every dollar taken in is profit.
- Markup is the percentage added on top of your cost. To achieve a 40% margin on a $60 item, you need a 66.7% markup ($60 × 1.667 = $100).
How it's calculated
Worked example
A craft store owner buys materials for a handcrafted candle for $60 and sells it for $100. Their direct gross profit is $40, which is a 40.0% gross margin and a 66.7% markup. With $15 in packaging and platform fees, their final net profit is $25.00 (a 25.0% net margin).
Frequently asked questions
What is a healthy gross profit margin for a small business?
It depends a lot on the industry. Businesses that sell physical products have material, stock and shipping costs, so their gross margins are usually lower than service or digital businesses, where each extra sale costs very little. Compare yourself with businesses like yours, and with your own past results, rather than with one general number.
How do I price a product if I know my target margin?
Use the formula: Price = Cost ÷ (1 − (Target Margin ÷ 100)). For example, if an item costs $40 and you want a 50% margin: $40 ÷ (1 − 0.50) = $80.
Why is markup always higher than profit margin?
Because markup is divided by the smaller number (your cost), whereas margin is divided by the larger number (your total selling price).