How to use the price chain markup calculator
- Enter the cost to the first seller. This is what the maker pays, or what a reseller pays the maker.
- In the stages list, name each stage and choose whether its percent is a markup on cost or a margin on price.
- Enter the percent for each stage. Add or remove stages to match your chain.
- Read the shelf price, the overall multiplier and the table that shows what each stage buys at, sells at and gains.
Formula
markup stage: selling price = buying price x (1 + markup / 100)
margin stage: selling price = buying price / (1 - margin / 100)
overall multiplier = product of the stage multipliers
A 25 percent markup and a 20 percent margin describe the same price change. A markup is a share of cost, and a margin is a share of the selling price, so for the same price the margin is always the smaller number.
A product that passes through three sellers
A product costs the maker $10.00. The maker adds a 50 percent markup and sells at $15.00. The distributor adds a 25 percent markup and sells at $18.75. The retailer wants a 40 percent margin on the shelf price, so it sells at $18.75 / 0.6 = $31.25.
The multipliers are 1.5, 1.25 and 1.6667, and 1.5 x 1.25 x 1.6667 = 3.125. The shelf price is 3.125 times the starting cost, and the first cost is 32 percent of the shelf price. The retailer’s gain of $12.50 is a 66.67 percent markup on its cost and a 40 percent margin on its price.
Mixing markup and margin
Retailers often quote a margin, while makers and wholesalers more often quote a markup. Mixing them is the main source of mistakes in pricing chains, because the same 40 percent gives very different prices in each form. Entering each stage in the form its owner uses, and reading both percents in the table, avoids that.
Working backward from a shelf price
To find the cost that fits a target shelf price, divide the shelf price by the overall multiplier. For the example, a $31.25 shelf price needs a first cost of $10.00. You can also test a stage in isolation with the Markup Calculator, or see the margin the last seller keeps with the Profit Margin Calculator. A simple doubling of cost is covered by the Keystone Pricing Calculator.
Assumptions and limits
- Each stage buys at exactly the price the previous stage sells at.
- Shipping, duties, taxes, discounts and returns are not included unless you fold them into a stage percent.
- A margin must be below 100 percent, because a margin of 100 percent would need an infinite price.
- Prices are shown rounded to the cent, but the chain is calculated without rounding between stages.
- The percents shown when the page opens are examples for a sample product.
Frequently asked questions
Why does the retailer’s 40 percent margin equal a 66.67 percent markup?
A 40 percent margin means cost is 60 percent of the price. The gain is 40 over 60 of the cost, which is 66.67 percent. Margin is always smaller than the markup that gives the same price.
How many stages can I add?
Up to 8. Most chains have two to four, such as maker, distributor and retailer, but the list is long enough for importers and agents.
Can a stage have zero percent?
Yes. A zero percent stage passes the price through unchanged. It is useful to keep a stage in the list without changing the result.
What does the share of the shelf price tell me?
It shows how much of the final price is the first cost. In the example it is 32 percent, so the other 68 percent is what the chain adds.