Target Gross Margin Pricing

When to use it

Use this when you know the cost of goods sold for one item and want to work backward from a target gross margin. The example uses simulated US-dollar amounts, not market prices. Gross profit leaves operating expenses to be paid; it is not net profit.

Inputs

USD

Calculation method

Price = unit cost ÷ (1 − target margin). Gross profit = price − unit cost. Markup = gross profit ÷ unit cost. With a $24 cost and a 40% margin, the price is $40 and gross profit is $16. The equivalent markup is 66.67%, not 40%.

24 [Cost of goods sold per item]/(1 - 40 [Target gross margin]%) → Price

Price - Cost of goods sold per item → Gross profit

Gross profit/Cost of goods sold per item → Markup

Change one input

Change only unit cost from $24 to $30. Price and gross profit increase together; the target margin and equivalent markup stay the same. This is a pricing calculation, not evidence that buyers will accept the price.

Results are displayed to at most two decimal places; later formulas use unrounded values.

Scope and limits

• Unit cost must be positive; target margin must be at least 0% and below 100%.
• Use a consistent sales-tax-exclusive basis for price and cost.
• Gross profit is not profit after operating expenses.

Cost means the cost of goods sold for this item, not an inventory purchase payment, all business expenses, or just one ingredient. This canvas does not decide which production costs to allocate. It excludes sales taxes, advertising, platform charges and income tax. Display rounding does not guarantee the exact target margin at the rounded selling price; check the price you actually set.

Download and import into Calvance to edit the numbers. The canvas does not reject every invalid input; check the stated ranges.

Common questions

Why not add 40% to cost?

Markup divides the gain by cost; gross margin divides it by selling price. On a $24 cost, a 40% markup gives $33.60 and a margin of about 28.57%.

Can I enter a 100% target?

Not with a positive cost in this model: the denominator would be zero. A zero-cost product needs a different pricing decision.

References

Business Queensland defines gross margin and markup. The selling-price formula follows by rearranging the margin definition.

For a cost-plus example, see bouquet costs and quotes. To include a sales-based fee and fixed costs, use product break-even sales.

How to import your template

1. Save the file. Choose Download template and save the .calvx file to Files on your iPhone or iPad. From a computer, you can send it to your device with AirDrop.
2. Open Import. In All Canvases in Calvance, tap the add button to open the template screen, then choose Import.
3. Choose the file. Select the saved .calvx file to create your own canvas. Importing uses one canvas from your allowance.
4. Edit and check. Check the results against the worked example, then add your numbers. Duplicate the canvas to keep different versions.

Download .calvx file