How to price for a target profit margin
Setting a target margin is easy. Hitting it is where most businesses quietly slip up — because they price using markup when they mean margin, and end up short every time.
Skip the math — the free profit margin and pricing optimizer runs this from your own figures.
Open the free calculator →Margin and markup are not the same
Margin is your profit as a percentage of the selling price. Markup is your profit as a percentage of the cost. They describe the same profit from two different angles, so the percentages never match — and confusing them is the number-one pricing error.
If you want to keep 60% of each sale (a 60% margin), adding 60% to your cost (a 60% markup) gets you nowhere near it. That markup only produces about a 37% margin.
The correct formula
To price for a target margin, divide your unit cost by (1 minus the target margin). In formula terms: price = cost ÷ (1 − target margin).
Example: a $40 cost with a target 60% margin gives 40 ÷ (1 − 0.6) = 40 ÷ 0.4 = $100. Sell at $100 and your $60 of profit is exactly 60% of the price — the margin you actually wanted.
Check it the other way
Always sanity-check by working the margin back out: (price − cost) ÷ price. For the example, (100 − 40) ÷ 100 = 60%. If that matches your target, your price is right.
This quick reverse check catches the markup trap instantly. If your 'target margin' price only back-calculates to 40-something percent, you priced with markup by mistake.
Apply it across the catalog
Doing this by hand for one product is easy; doing it consistently across dozens is where margin quietly leaks. Different costs and different target margins per line mean it's worth systematizing.
The free optimizer below prices every product for the margin you set, shows your current margin, and flags the gap — so you can reprice the items that are silently underperforming.
Questions
Can I use one target margin for everything?
You can start there, but it's usually better to vary it. Products with more competition or price sensitivity may need a lower margin to sell; premium or unique items can carry a higher one. A blanket margin is a fine default, but adjusting per product or category typically makes you more total profit.
Should target margin be on gross or net?
For pricing individual products, use gross margin — price minus the direct cost of that item. Net margin includes overheads and tax that aren't tied to a single unit, so it's the wrong base for per-product pricing. Price for a healthy gross margin, then make sure your total gross profit covers overheads to leave a good net margin overall.