Markup Calculator

How to use the markup calculator

Start by choosing what you want to work out. The calculator has three modes, and the cost per unit field is used in all of them.

1. Selling price, from cost and markup. You know your cost and the markup you want to add. You get the price to charge.
2. Markup, from cost and selling price. You already have a price in mind, perhaps what competitors charge. You get the markup and margin that price gives you.
3. Selling price, from cost and target margin. You know the margin you need, for example from your financial plan. You get the price that delivers it.

For cost per unit, enter everything it costs you to get one unit to the customer: materials or wholesale price, packaging, shipping and payment fees. For a service, use the cost of the hours and materials for one job. Leave out rent, software and other overheads. Those are paid out of the profit per unit that the calculator shows you.

The markup formula

Markup and margin describe the same profit from two sides. Markup compares it with what you paid. Margin compares it with what the customer paid, which is why it is also called gross margin. Because the price is always higher than the cost when you make a profit, the margin is always the smaller percentage.

A worked example

Say you sell printed tote bags. Each bag costs you $20 once you add the blank bag, printing, packaging and shipping. You decide to add a 60% markup.

The other two modes give the same answer from a different starting point. Enter a $20 cost and a $32 price and you get a 60% markup. Enter a $20 cost and a 37.5% target margin and you get a $32 price. A common mistake is to want a 60% margin and add a 60% markup. To keep 60% of the price on a $20 cost you would need to charge $50, which is a 150% markup.

How to choose a markup for a new business

Adding a fixed percentage to your cost is called cost-plus pricing. It is a safe way to make sure you never sell at a loss, but it only tells you the lowest price that works for you. It says nothing about what customers will pay. Use the result as a floor, then check it from three directions.

• Does the profit per unit cover your overheads? Multiply profit per unit by the number of units you can realistically sell in a month. If that does not cover rent, software, marketing and your own pay, the markup is too low or the volume is too optimistic. The break-even calculator does this sum for you.
• What do customers pay today? Look at what similar products sell for, and ask people in interviews what they currently spend on the problem. If your price lands far above that, you need a clear reason. If it lands far below, you may be leaving money on the table. This is part of how you validate a startup idea.
• What will it cost to win each customer? Ads, discounts and marketplace fees come out of the same profit per unit. A markup that looks fine on paper can vanish once you count customer acquisition cost.
• Do resellers need a cut? If you plan to sell through shops, they will add their own markup on top of your wholesale price. Work back from the final shelf price to check there is room for both of you.

Once you have a price you trust, write down how you got there. Your pricing strategy and the margin behind it belong in your business plan, and you can check the margin for the whole business with the profit margin calculator. In Fonda's journey you talk to real customers in the Interviews step before you get a Verdict, which is a good moment to ask what they pay today, so the price in your plan does not rest on a guess.

What the calculator leaves out

• Overheads. It works on one unit. Rent, salaries and software are not in the cost unless you add a share of them yourself.
• Sales tax and VAT. The selling price is before any tax you add at checkout. Rules differ by country and state, so check what applies to you.
• Discounts and returns. If you often sell at 20% off, your real markup is lower than the one on the price tag. Run the calculator again with the discounted price.
• Volume. A higher price usually means fewer sales, and a lower one more. The calculator does not estimate how demand changes.
• Costs that change with scale. Suppliers often charge less per unit on larger orders, so update the cost as you grow.