Setting a price from a target margin
Divide the cost by one minus the margin as a decimal. For a 40% margin on a cost of 60, that is 60 divided by 0.6, which is 100. Adding 40% to the cost gives 84 instead — a margin of 28.6%, not 40%, and a shortfall of 16 on every unit. The equivalent markup for a 40% margin is 66.7%, and that is the figure to add to the cost if you prefer working forwards.
The price each target margin needs
| 10.00% | 11.11% | $66.67 | $6.67 |
| 20.00% | 25.00% | $75.00 | $15.00 |
| 25.00% | 33.33% | $80.00 | $20.00 |
| 30.00% | 42.86% | $85.71 | $25.71 |
| 40.00% | 66.67% | $100.00 | $40.00 |
| 50.00% | 100.00% | $120.00 | $60.00 |
| 60.00% | 150.00% | $150.00 | $90.00 |
| 70.00% | 233.33% | $200.00 | $140.00 |
| 75.00% | 300.00% | $240.00 | $180.00 |
| 80.00% | 400.00% | $300.00 | $240.00 |
An estimate, not financial advice. Figures are illustrative and depend on assumptions listed below. Check anything you plan to act on with a qualified adviser or the provider itself.
The same profit, measured two ways. They track closely at the bottom and diverge without limit as margin approaches 100%.
price = cost / (1 - margin). Adding the margin to the cost is a different and smaller number.
The shortfall grows with the target: at a 60% margin, adding 60% to the cost lands at a 37.5% margin.
A margin target of 100% or more has no solution, because it needs a cost of zero or less.
How it works
The formula
From a cost and a price:
profit = price - cost
margin = profit / price
markup = profit / cost
Setting the price from a target:
from a margin price = cost / (1 - margin)
from a markup price = cost x (1 + markup)
Converting one percentage to the other:
markup = margin / (1 - margin)
margin = markup / (1 + markup)
round = to the nearest minor unit for money,
and to two places for the percentages.
What it assumes
- One unit at full price. Discounts, returns, shrinkage and payment fees all reduce the price without reducing the cost, so they come out of the margin and are not modelled here.
- Cost means whatever you put in it. For a gross margin that is the direct cost of the goods; for a net margin it is everything. The arithmetic does not care, and the label on the answer depends on which you used.
- A margin target of 100% or more is rejected rather than clamped, because it has no solution — it needs a cost of zero or below.
- Selling below cost is allowed. It makes the profit and both percentages negative, which is correct and is a thing businesses model on purpose.
- The figures carry no currency symbol on purpose. The arithmetic is the same in pounds, euros or dollars, and the tool follows whichever currency your locale uses.
Common questions
Why is dividing right when adding feels natural?
Because the margin is measured against the price, and the price is the thing you do not have yet. Adding a percentage measures it against the cost, which is the definition of markup. The division is what solves for a number defined in terms of itself, in the same way that removing a tax from an inclusive total is a division rather than a subtraction.
Does this account for discounts or returns?
No. It prices one unit at full price. A discount reduces the price without reducing the cost, so it comes entirely out of the margin — 10% off a 40% margin leaves 33.3%, not 30%. Returns, shrinkage and payment fees do the same thing, which is why a headline margin and a realised one differ.
Sources
Method written and checked by Tessalor on Jul 31, 2026.
The full method, worked example and every assumption behind this figure are on Profit Margin Calculator.