Formula
Target selling price = Unit cost ÷ (1 − Target margin rate)Direct answer
To calculate a selling price from cost and a target margin, divide unit cost by one minus the margin rate. Shopify presents this same target-price relationship in its product pricing guide.
A 40% target margin does not mean adding 40% to cost. Margin uses selling price as its denominator; markup uses cost.
Worked pricing example
For a $40 unit cost and a 40% target margin:
$40 ÷ (1 − 0.40) = $66.67
The unit profit within the entered cost scope is $66.67 − $40 = $26.67. That profit is 40% of selling price but approximately 66.67% of cost, so the implied markup is 66.67%.
Decide what belongs in unit cost
The result protects only the costs entered. A product cost of $40 may be incomplete if every sale also carries packaging, payment processing, outbound shipping, marketplace fees or a predictable return allowance.
Use a cost definition that matches the margin you intend to manage:
| Cost scope | What the resulting margin describes |
|---|---|
| Product cost only | Product gross margin before other variable costs |
| Product plus fulfillment | Margin after included fulfillment costs |
| All variable unit costs | Contribution available for fixed costs and profit |
Do not silently change the scope when comparing products.
Economic price is not market validation
The formula identifies a price that produces the target margin if a sale occurs and the cost estimate is accurate. It does not establish that customers will pay that price or that the expected volume will remain unchanged.
Compare the result with observed prices, positioning, demand evidence and channel requirements. If the market will not support the calculated price, the practical options are changing cost, changing the target margin, changing the offer or declining the product, not relabeling markup as margin.
Verify the result from the other direction
Enter the proposed price and cost in the Profit Margin Calculator to verify the achieved margin. Use the Markup Calculator when the business intentionally manages pricing as a percentage of cost.
For a broader operating view, connect the result to the Contribution Margin Calculator and the fixed costs the product must help cover.
Common mistakes
- Adding the target margin percentage directly to cost.
- Leaving transaction or fulfillment costs outside the cost scope without saying so.
- Applying a 100% target margin, which has no finite selling price under this formula.
- Treating the calculated price as proof of customer willingness to pay.
- Comparing margins built from different cost definitions.
Limits of this calculator
The tool excludes taxes, currency conversion, price elasticity, competitor responses, fixed overhead and volume discounts unless reflected in the entered cost. It provides an economic starting point for pricing, not a complete pricing strategy.
Assumptions
- The entered unit cost includes every cost meant to be protected by the target margin.
- Taxes, discounts, returns and fixed overhead are excluded unless included in unit cost.
- The result is an economic starting point, not evidence of market willingness to pay.
Sources and methodology
CalcMotive publishes the formula and assumptions so you can decide whether the estimate fits your use case. See our methodology standards.
- How to Price a Product in 2026; Shopify; accessed Jul 13, 2026
- Profit Margin Calculator; Shopify UK; accessed Jul 13, 2026