How to Calculate a Selling Price from a Target Margin
To calculate a selling price from a target gross margin, divide unit cost by 1 minus the margin rate. For a $40 cost and a 40% target gross margin, $40 ÷ 0.60 = $66.67 before GST.
Apply the target-margin formula
Use selling price = unit cost ÷ (1 − target margin). Convert a percentage to a decimal before calculating. For a 40% target margin, use 0.40; the denominator is 0.60.
Worked example: $40 ÷ 0.60 = $66.67. The gross profit is about $26.67, which is 40% of the $66.67 selling price after rounding.
Compare the result with markup
A target margin and a markup are not interchangeable. A $40 cost with a 50% markup gives a $60 price and a 33.3% margin. A $40 cost with a 40% target margin gives about $66.67 and a 66.7% markup.
The markup and margin calculator starts with a markup input and shows the resulting margin. Use it to understand that relationship; for a target-margin price, apply the formula above.
Check costs, GST and customer value
Unit cost should reflect the direct cost relevant to the product, but a target gross margin does not automatically cover rent, labour, shipping, transaction fees, discounts or returns. Review all costs and test whether customers will accept the price. Australian Government pricing guidance discusses both cost coverage and customer value.
Keep GST treatment clear. The example is a pre-GST planning price; whether GST applies depends on your registration and supply. Use the GST calculator for a basic separate calculation.
Try the related calculator
Use the Markup and margin calculator to apply the formula to your own figures. Results are estimates using the assumptions shown on the tool page.
Frequently asked questions
What is the formula for a target gross margin price?
Divide unit cost by one minus the target gross margin expressed as a decimal: price = cost ÷ (1 − margin).
What price gives a 40% margin on $40 cost?
$40 ÷ 0.60 = $66.67 before GST, subject to rounding. This is a simple unit-cost calculation.
Is target margin the same as markup?
No. Margin is profit divided by selling price; markup is profit divided by cost. The same product price produces different percentages.