Profit & margins
How to calculate selling price
The selling price formula sets a price from your cost and the margin you want: selling price = cost ÷ (1 − target margin). If you think in markup instead, price = cost × (1 + markup). The two give very different prices for the same percentage, which is the most common pricing mistake online stores make.
The selling price formulas
Selling price = Cost ÷ (1 − Target margin)
Selling price = Cost × (1 + Markup)
And to check a price you already have:
Markup % = (Price − Cost) ÷ Cost × 100 Margin % = (Price − Cost) ÷ Price × 100
Use landed cost as the cost: supplier price plus freight, duties and packaging. The guide to product costing shows how to build it.
Worked example
Worked example: pricing a water bottleExample numbers
Landed cost: $10.30
From a 60% target margin:
Price = $10.30 ÷ (1 − 0.60) = $25.75
Check: margin = ($25.75 − $10.30) ÷ $25.75 = 60%; markup = $15.45 ÷ $10.30 = 150%.
From a 100% markup:
Price = $10.30 × (1 + 1.00) = $20.60
Check: margin = ($20.60 − $10.30) ÷ $20.60 = 50%, not 100%.
A store that thinks "I double my costs, so I make 100%" is really making a 50% gross margin, before shipping, fees and ads.
The markup vs margin trap
The same percentage means very different things:
| Markup | Equivalent margin | Price for a $10 cost |
|---|---|---|
| 25% | 20.0% | $12.50 |
| 50% | 33.3% | $15.00 |
| 100% | 50.0% | $20.00 |
| 150% | 60.0% | $25.00 |
| 200% | 66.7% | $30.00 |
| 300% | 75.0% | $40.00 |
Margin = Markup ÷ (1 + Markup) Markup = Margin ÷ (1 − Margin)
Margin can never reach 100% (that would mean zero cost), but markup can go as high as you like.
Contribution Margin per SKU CalculatorWhat a single SKU actually contributes after COGS, shipping, and fees.How to choose your target margin
Your gross margin has to pay for everything after the product itself:
- Add up your variable costs per order as a share of revenue: shipping, payment fees and ad spend.
- Add your overheads as a share of revenue.
- Add the profit you want.
If shipping and fees are 12%, ads 18%, overheads 15% and you want 10% profit, you need a gross margin of at least 55%. The guide to what a good profit margin is walks through this in full.
Want this tracked automatically, every day?See which Google Ads campaigns actually make money, measured on real profit (POAS), not just revenue.Try Selvra OSPricing tips for online stores
- Price per product, not with one store-wide markup. Different products carry different shipping costs and return rates.
- Check the price after discounts. If a product is often sold with a 20% code, set the list price so the discounted price still hits your margin. The discount code profit calculator shows the impact.
- Round thoughtfully. $25.75 can become $25.95 or $24.99; check the margin after rounding.
- Revisit prices when costs change. A rise in freight or supplier prices should prompt a price review.
To set up these formulas in a spreadsheet, see how to calculate profit margin in Excel.
FAQ
How do you calculate selling price?
Divide your cost by one minus your target margin. A product that costs $10.30 with a 60% target margin needs a selling price of $10.30 ÷ (1 − 0.60) = $25.75.
What's the difference between markup and margin?
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. The same product always has a higher markup than margin: a 100% markup is only a 50% margin.
Should I price from markup or margin?
Margin, for most online stores, because your costs, ad targets and profit reports are all measured as a share of revenue. Pricing from markup makes it easy to accidentally aim lower than you think.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 150% markup is 1.5 ÷ 2.5 = 60% margin. To go the other way, markup = margin ÷ (1 − margin).