Reverse-calculate margin: find the maximum cost you can pay or the list price you need for a target profit margin, with an optional discount.
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Reverse Margin Formula
The calculator uses three modes. Gross margin is net sale minus unit cost of goods sold, divided by net sale. Net sale is the selling price after the optional discount.
Max Cost mode solves for the highest cost you can pay and still hit your target margin:
Check Margin mode tells you the actual margin you earn on a known cost and price:
Price Needed mode solves for the list price required to hit a target margin after a planned discount:
- Price: list or sticker price before discount
- Discount: percent off the list price at checkout
- Net Sale: price actually collected, equal to Price × (1 − Discount/100)
- Cost: unit cost of goods sold for the item
- Margin: profit as a percent of net sale
- Markup: profit as a percent of cost
Max Cost is for buyers negotiating with suppliers. Check Margin verifies a deal you already have on the table. Price Needed is for setting a sticker price that survives a planned promotion.
Margin vs. Markup
Margin divides profit by net sale; markup divides it by cost. On a profitable sale with positive cost, the margin percentage is smaller than the markup percentage. The table below shows mathematical conversions, not industry benchmarks.
| Margin | Equivalent Markup | Cost as % of Price |
|---|---|---|
| 10% | 11.1% | 90% |
| 20% | 25.0% | 80% |
| 30% | 42.9% | 70% |
| 40% | 66.7% | 60% |
| 50% | 100% | 50% |
| 60% | 150% | 40% |
| 75% | 300% | 25% |
Worked Examples
Example 1: Maximum cost on a discounted item. You plan to sell a jacket at $120 list with a standard 25% off promo, and you need a 40% margin on net sale.
- Net sale = 120 × (1 − 0.25) = $90.00
- Max cost = 90 × (1 − 0.40) = $54.00
If your supplier quote is above $54, you either renegotiate, raise the list price, or skip the discount.
Example 2: Price needed to absorb a discount. Your unit cost is $18 and you want a 50% margin even after a 20% off sale.
- Net sale needed = 18 ÷ (1 − 0.50) = $36.00
- List price = 36 ÷ (1 − 0.20) = $45.00
Set the sticker at $45 so the discounted price still clears your margin target.
FAQ
Why is my margin lower than my markup? For a profitable sale with positive cost, net sale is larger than cost, so dividing the same profit by net sale gives a smaller percentage. Markup is undefined when cost is zero. A negative margin represents a loss.
What if I leave the discount blank? The calculator treats it as 0%. Net sale equals list price.
Can the margin be 100%? Yes: positive net sale with zero cost gives a 100% margin. In maximum-cost mode, a 100% target gives zero maximum cost. With positive cost, no finite selling price reaches 100%. With zero cost, every positive selling price gives 100%, so price-needed mode has no unique answer. A target above 100% would require negative cost, which this calculator excludes.
Does this include taxes, shipping, or fees? These are not added automatically. Gross margin uses unit cost of goods sold. To interpret the calculation as a contribution margin instead, enter total variable cost per unit, including variable product costs and variable selling costs, and exclude fixed costs. Add variable selling fees to variable product costs; subtracting them from the cost input would overstate the contribution.
