Working backwards from the margin you want
If you know you need a 30% margin to cover returns, advertising and your own salary, the useful question is not “what margin do I make at $24.99?” but “what price gives me 30%?”. That is a reverse margin calculation.
Without fees the formula is simple: price = cost ÷ (1 − margin). Online, part of the price goes to percentage-based fees, so the formula becomes price = fixed costs ÷ (1 − margin − percentage fees). A 30% margin with 15% commission and 3% payment processing leaves only 52% of the price to cover your fixed costs, so the price is the fixed costs divided by 0.52.
Margin and markup at common levels
Mixing up margin and markup is one of the most common pricing mistakes. This table shows the markup you need on cost to reach a given margin (before fees):
| Margin | Equivalent markup |
|---|---|
| 10% | 11.11% |
| 20% | 25% |
| 25% | 33.33% |
| 30% | 42.86% |
| 40% | 66.67% |
| 50% | 100% |
More on the difference in our guide margin vs markup, and why a fixed markup under-prices on marketplaces in why cost-plus pricing fails.