Guides to margin, markup and pricing arithmetic
Each guide answers one pricing-arithmetic question with the formula, a worked example, a table you can reuse and links to the sources for the definitions.
Suggested reading order
- Margin vs markup: the denominator matters: the two formulas, conversion in both directions, a lookup table and the most common pricing mistake.
- Gross vs net margin: gross, operating and net margin on one illustrative income statement, and why a healthy gross margin can still mean a thin net margin.
- How discounts affect margin: how much extra volume a discount needs just to keep gross profit flat, and the reverse for price increases.
- Build a price and cost sensitivity table: a grid that shows how margin moves when price and cost both change, and how to read it.
One running example
Most guides reuse the same illustrative product: it costs $60 and sells for $100, so gross profit is $40, gross margin 40% and markup 66.67%. Using one example throughout makes it easy to see how each concept changes the same sale. Where a guide needs more context, such as a full income statement, it states the extra assumptions.
Key terms used across the guides
- Gross profit: price minus the direct cost of the unit, in dollars.
- Gross margin: gross profit as a percentage of price (or of net sales, on an income statement).
- Markup: gross profit as a percentage of cost.
- Direct cost: what one unit costs you to buy or make; state whether it includes freight, duties and packaging.
- Net margin: net income as a percentage of net sales, after overhead, interest and tax.
Calculate as you read
The margin and markup calculator and the price from target margin calculator use the same formulas, so you can reproduce each worked example and then try your own numbers.
Looking for break-even or contribution margin?
Volume questions, such as how many units cover fixed costs, are covered on the sibling site ameticapital.com. This site stays focused on the arithmetic of price, cost and margin per sale.
Educational arithmetic only. Results do not set a suitable price or establish suitability for any lending, investment or business decision. See Use & limitations.