SalevaWhat this calculator does
Every price in a shop is a decision about two numbers: what the item cost you and what the customer pays. The gap between them is your gross profit, and there are two common ways to describe it as a percentage. Margin is the profit as a share of the selling price. Markup is the profit as a share of the cost. Both are correct, they just measure against different things, and mixing them up is one of the easiest ways to price lower than you meant to.
The calculator has three modes. Profit from a price tells you what you actually make on an item you already sell. Price for a margin and Price for a markup work backwards from the cost to the price you should charge.
How to use it
- Pick your currency. The choice is remembered on this device for the other tools too.
- Enter the cost price of one item. If you buy by the carton, divide the carton price by the number of pieces, and add any delivery or transport you paid.
- Either enter your selling price, or switch mode and enter the margin or markup you want.
- Optionally enter how many you expect to sell, to see the total profit on that stock.
Margin and markup are not the same number
Take an item that costs you 80 and sells for 100. The profit is 20.
- Margin = 20 ÷ 100 = 20% (profit as a share of the price)
- Markup = 20 ÷ 80 = 25% (profit as a share of the cost)
margin % = (price − cost) ÷ price × 100
markup % = (price − cost) ÷ cost × 100
price for a margin = cost ÷ (1 − margin ÷ 100)
Because the cost is always smaller than the price when you make a profit, the markup is always the bigger of the two percentages. The gap widens as the numbers grow:
| Markup on cost | Margin it gives | Cost 100 sells for |
|---|---|---|
| 10% | 9.1% | 110 |
| 20% | 16.7% | 120 |
| 25% | 20% | 125 |
| 33.3% | 25% | 133.33 |
| 50% | 33.3% | 150 |
| 100% | 50% | 200 |
Worked example: pricing a carton of juice
A carton of 24 juice packs costs Rs 1,380, and the supplier charges Rs 60 to deliver it. The real cost per pack is (1,380 + 60) ÷ 24 = Rs 60.
You want a 20% margin. The price is 60 ÷ (1 − 0.20) = Rs 75, which leaves Rs 15 profit per pack, or Rs 360 on the carton.
If instead you had simply "added 20%" to the cost, you would charge Rs 72. That is a 20% markup but only a 16.7% margin, and Rs 3 less on every pack: Rs 72 less on the carton. Neither price is wrong, but only one of them is the margin you intended.
Common mistakes
- Treating markup and margin as the same. If your plan says 25% margin and you add 25% to the cost, you are really earning 20%.
- Leaving out the cost of getting stock to the shop. Rickshaw fare, delivery charges and loading all belong in the cost per item.
- Forgetting breakage, expiry and free items. If one pack in a carton usually goes to waste, the other 23 have to carry its cost.
- Pricing once and never again. When the supplier raises the rate, the old shelf price quietly eats your margin. Recheck prices whenever a new invoice arrives.
- Putting rent and wages into the cost price. Those are monthly costs. Cover them with your overall margin; the break-even calculator shows how much you need to sell.
Tips for small shops
Different items can carry different margins. Staples that customers compare from shop to shop often need a thin margin to stay competitive, while convenience items, small accessories and slow sellers can usually carry more. What matters at the end of the month is the total gross profit across everything you sold, not the margin on any single item.
Round prices to amounts that are easy to pay and give change for, and round up rather than down. Keep a note of the cost price of each item where you can find it quickly, so that you can answer a bargaining customer without guessing whether you are still in profit.
Questions
What is a good profit margin for a shop?
There is no single right number. It depends on what you sell, your competition and your monthly costs. A more useful question is whether your total gross profit covers rent, wages and bills with something left over. Use the break-even calculator to find out.
Why can't I enter a margin of 100% or more?
Margin is a share of the selling price, and profit can never be more than the whole price. A 100% margin would mean the item cost you nothing. Markup has no such limit: a 150% markup is possible.
Should I calculate margin before or after a discount?
After. The margin that counts is on the price the customer actually paid. The discount calculator shows how far you can go before the margin drops below your minimum.
Does this include tax?
No. Enter prices the way you think about them in your shop. If you collect a tax on top of your price and pay it over, leave it out of both the cost and the selling price.
Related reading
- Seven billing mistakes that quietly cost a small shop money
- How to manage inventory in a small shop without spending your evenings counting
- Sales history, expenses and reading your reports
Saleva does this automatically at the till: enter the cost price once, and every sale shows its profit in the reports. Get the free Android app.