Worked Example: Target Gross Margin Pricing
Suppose you purchase wholesale merchandise at a cost price of and want to achieve a target gross profit margin of 40%:
- Cost Price (C) = .00
- Target Margin (M) = 40% (0.40)
- Calculate Selling Price (SP) = Cost / (1 - Margin) = / 0.60 = .00
- Absolute Profit = - = .00
You must list the product at a selling price of .00 to hit your 40% margin goal.
Mathematical Formulations
Profit metrics are computed using the following ratios:
If you know your **Cost (C)** and desire a specific **Gross Margin (M)**, the **Selling Price (S)** is calculated as:
Markup to Margin Conversion Matrix Table
| Markup (%) | Equivalent Gross Margin (%) | Margin Revenue Share (Gross Profit / Sales) |
|---|---|---|
| 5.0% | 4.8% | 1 / 21 |
| 10.0% | 9.1% | 1 / 11 |
| 15.0% | 13.0% | 3 / 23 |
| 20.0% | 16.7% | 1 / 6 |
| 25.0% | 20.0% | 1 / 5 |
| 33.3% | 25.0% | 1 / 4 |
| 50.0% | 33.3% | 1 / 3 |
| 100.0% | 50.0% | 1 / 2 |
Frequently Asked Questions
Margin is calculated relative to the final, higher Selling Price, whereas markup is calculated relative to the lower Cost Price. Because the divisor of margin is larger, the resulting margin percentage is always smaller than the markup percentage.
No. A 100% margin means cost is zero (pure profit). Since selling prices cannot be infinity, gross profit margins can never structurally exceed 100%. Markup, however, can be infinity (e.g. 500%, 1000% markup).