How to set a selling price that hits a target margin

If you know your cost and the margin you need, the selling price comes from one division. You do not need to guess a markup or try several prices in a spreadsheet.

The formula

Selling price = cost divided by (1 - target margin).

Write the margin as a decimal, so 40 percent becomes 0.40, and 1 - 0.40 = 0.60.

A worked example

Say a product costs you Rs 300 and you want a 40 percent margin.

• Selling price = Rs 300 divided by 0.60 = Rs 500
• Profit = Rs 500 - Rs 300 = Rs 200
• Check: Rs 200 divided by Rs 500 = 40 percent

The reason it works: if you keep 40 percent of the price, then the cost must be the other 60 percent. Rs 300 is 60 percent of the price, so the price is Rs 300 divided by 0.6.

Try other margins on the same cost

With the same Rs 300 cost:

• 25 percent margin: Rs 300 divided by 0.75 = Rs 400
• 30 percent margin: Rs 300 divided by 0.70 = Rs 428.57
• 50 percent margin: Rs 300 divided by 0.50 = Rs 600

You can see how each extra 10 points of margin pushes the price up faster than you might expect. Seeing these side by side helps you decide whether a target is realistic for what your customers will pay.

Round at the end

Rs 428.57 is not a price anyone wants to see. Work out the exact figure, then round to a price that looks right, such as Rs 429 or Rs 449. Rounding up gives you a little extra margin. Rounding down costs you some, so check the margin again after you round. For ideas on how the final number feels to a buyer, read price anchoring for Indian D2C brands.

Do not forget the other costs

The cost in this formula is whatever you put into it. If it is only the supplier price, your real margin after shipping, packing and payment fees will be lower. Start from a full cost, such as the landed cost or the handmade cost that includes your time, and then decide the margin.

A note on discounts

If you plan to run offers, set the price with room for them. A 40 percent margin falls fast once you take 10 percent off, which is shown in how much profit you lose on a 10 percent discount.

Next step

Choose one product, write down its full cost and the margin you want, and divide. Compare the answer to what you charge today. If the gap is large, you have either found an easy pricing win or you have learned that the product needs a cheaper source.