Selling price from margin
v1costomargenprecio_ventaHow it is worked out
Work out what to charge for a product so that you keep the margin you want on the sale.
Margin is measured against the selling price, not the cost. If you want 35 % of what you charge to be profit, the cost has to be the remaining 65 %: divide the cost by 0.65. A product costing 50,000 sells at 76,923.
The expression that runs
costo / (1 - margen / 100)The fields arrive with an example filled in: put your own numbers in and run it again. You can also edit the formula to fit your case.
What if the formula were yours?
This calculator is not hand-written: it is an Axioma formula. Open it in the editor to see how it is built, adapt it to your case and create the ones you need.
Margin and markup are not the same, and the difference costs money
Adding 35 % to the cost gives 67,500, and on that price the profit is 17,500, which is barely 26 % of the sale. To actually keep 35 % you have to sell at 76,923: almost ten thousand more per unit.
It is called markup when it is worked out on the cost and margin when it is worked out on the sale. It is the most common pricing mistake in small businesses, and it grows with the percentage: at 50 % the gap is already double.
What belongs inside the cost
The cost is not just what you paid the supplier. Freight, packaging, platform commission and payment processing all come out of the same sale and belong in the figure, or the real margin will be smaller than the one you calculated.
Fixed overheads such as rent, utilities and salaries do not go here: they do not depend on each unit. They are covered by all the margins added together, which is a different calculation.
The highest possible margin is 100 %
Typing a margin of 100 % breaks the calculation, because it would mean a cost of zero. The closer you get, the more the price runs away: at 90 % a product costing 50,000 would sell at half a million.
In practice the margin is capped by the market rather than by the formula: the price that comes out has to be checked against what competitors charge and what the customer will pay.
Frequently asked questions
- Why is adding the percentage to the cost not enough?
- Because the percentage would be worked out on the cost instead of the sale. Adding 35 % to 50,000 leaves a real margin of 26 %, not 35 %.
- Does tax go before or after?
- After. The price that comes out here is before tax; whatever tax applies is added on top of it to reach the shelf price.
- What margin should I use?
- It depends on the sector and on turnover: a product that sells fast can live with a thin margin, one that sits on the shelf needs more. The formula gives you the price, not whether the market accepts it.