How to use the keystone pricing calculator
- Enter the wholesale cost per item.
- Add any other cost per item, such as freight or packaging, if you want it included in the cost.
- Keep the price multiplier at 2 for keystone pricing, or enter another multiplier to test.
- Read the retail price, profit per item, gross margin and markup, and compare other multipliers in the table.
Formula
Cost used = wholesale cost + other cost
Retail price = cost used x multiplier
Profit per item = retail price - cost used
Gross margin = profit / retail price x 100%
Markup on cost = (multiplier - 1) x 100%
A multiplier of 2 always means a markup of 100% and a gross margin of 50%.
An $18 item at keystone
Doubling an $18 cost gives a $36 retail price. Profit is $18, the gross margin is 50% and the markup on cost is 100%. If freight adds $2, the cost used is $20 and the keystone price is $40.
The table shows other multipliers on the same $18: 1.5x gives $27.00 with a 33.3% margin, 2.5x gives $45.00 with 60%, 3x gives $54.00 with 66.7% and 4x gives $72.00 with 75%.
What keystone means
Keystone pricing is the habit of setting the retail price at twice the wholesale cost. Some retailers use it as a first price and then adjust it. It is a convention and not a rule, and no price is correct for every product or shop.
Because the price is double the cost, half of every dollar of sales is gross profit. That has to pay for rent, labor, marketing, returns and everything else, so whether it is enough depends on your business.
Margin versus markup
Markup is the amount added to cost, expressed as a percent of cost. Margin is the profit as a percent of the price. A 100% markup is a 50% margin. The two are easy to confuse and give very different numbers.
To convert between them use the markup calculator or the profit margin calculator. For pricing with a different method see the cost plus pricing calculator, and to find the sales needed to cover your costs use the break even calculator.
Assumptions and limits
- The cost is the same for every item.
- The multiplier is applied to the whole cost you enter, including any other cost.
- Gross margin is before rent, labor, returns, taxes and other expenses.
- Competitor prices, demand and discounts are not considered.
Frequently asked questions
What is keystone pricing?
It means selling an item for twice what it cost you. A $18 item sells for $36, which is a 100% markup on cost and a 50% gross margin.
Is keystone pricing always the right price?
No. It is a starting point that some retailers use. Competition, demand and your costs can push the right price higher or lower.
Why is a 100% markup only a 50% margin?
Markup compares profit with cost, while margin compares profit with the selling price. When the price is double the cost, the profit is half the price.
Can I use a multiplier other than 2?
Yes. Enter any multiplier above 1, and the table also shows several others. A multiplier of 3 gives a 200% markup and a 66.7% margin.