Pricing formulas: margin and markup

Once you know your true cost, the question is: what do you charge? Pricing is not a guess. It is the result of a simple formula that you adjust to where your brand sits.

Markup and margin are not the same thing

• Markup: how many times you multiplied the cost. A cost of 15 and a sale at 45 is a markup of 3.
• Margin: the share of the selling price that is profit. (45 – 15) / 45 = 66.7%.

Retail and wholesale

If you sell to stores wholesale, you usually sell at about half the retail price, a general rule that varies by market. In the same example: retail 45, wholesale 22.5, and the wholesale margin (22.5 – 15) / 22.5 = 33.3%.

The important decision: can your brand live on the wholesale margin after its other expenses? If it cannot, start with direct selling.

What affects your price

• Your position among the alternatives you defined in module one.
• Quantity: small quantities mean a higher cost per piece.
• Future discounts: leave room for them in the price from the start.

Exercise

For each piece calculate the proposed retail price, the markup, the margin and the wholesale price. Compare them with the price of two alternatives from the market and see where you stand.