If I want a 40 percent margin, what markup should I add?

You decide you want to keep 40 percent of every sale as profit. The natural next step is to add 40 percent to your cost. That feels right, and it is wrong. A 40 percent margin needs a bigger markup than 40 percent.

The formula

Markup = margin divided by (1 - margin), with margin as a decimal.

For a 40 percent margin: 0.40 divided by 0.60 = 0.667, or 66.7 percent.

A worked example

Say your cost is Rs 60 and you want a 40 percent margin.

• Markup needed: 66.7 percent of Rs 60 = Rs 40
• Selling price: Rs 60 + Rs 40 = Rs 100
• Check: Rs 40 profit divided by Rs 100 price = 40 percent

It works out to a neat round Rs 100. Now see what happens when you add only 40 percent to the cost.

The common mistake

Adding 40 percent of Rs 60 gives Rs 24. The price becomes Rs 84.

• Profit: Rs 24
• Margin: Rs 24 divided by Rs 84 = 28.6 percent

You wanted 40 percent and got 28.6 percent. On a Rs 84 sale you are Rs 9.60 short of what you planned (a true 40 percent margin on Rs 84 would be Rs 33.60, and you made Rs 24). Over hundreds of orders this adds up.

Other quick conversions

• 20 percent margin needs a 25 percent markup (0.20 divided by 0.80)
• 25 percent margin needs a 33.3 percent markup
• 50 percent margin needs a 100 percent markup
• 60 percent margin needs a 150 percent markup (0.60 divided by 0.40)

As the margin you want gets higher, the markup you need rises faster. This is why high-margin products, such as skincare and jewellery, often have prices that look many times the cost.

An alternative that skips the markup

You can also skip markup entirely and divide cost by (1 - margin). Rs 60 divided by 0.60 gives Rs 100 directly. That method is covered in how to set a selling price to hit a target margin and is often easier because it needs only one step.

A reality check

A 40 percent margin is a gross target, before shipping, ads, packing and payment fees. If you want to see what actually remains, gross margin versus net margin walks through the deductions. And if you are not sure your cost is complete, start with landed cost.

Next step

Decide your target margin, convert it to a markup with the formula, and apply it to one product today. Then check the result in rupees by dividing the profit by the price. If it does not match your target, your formula has an error somewhere, and it is much cheaper to find it now than after you have printed the price tags.