THE STUDIO NOTEBOOK
Markup and margin are different numbers.
You buy a piece for $1,000 and sell it for $1,400. You have added 40% to the cost, but your gross margin is 28.6%. Knowing which number you are using makes a difference when setting a client price.
| Measure | Calculation | Example |
|---|---|---|
| Gross profit | Revenue − entered costs | $400 |
| Markup | Gross profit ÷ cost | 40% |
| Gross margin | Gross profit ÷ revenue | 28.6% |
Freight changes the result.
If you absorb $150 in freight, the same sale leaves $250 before other expenses. Your landed cost is $1,150 and your gross margin is 17.9%. If you separately charge the client for freight, include that charge in total revenue when making the comparison.
Work backward from a target.
To calculate a selling price for a chosen gross margin, divide the landed cost by one minus the margin as a decimal. For a $1,150 cost and a 30% target, the price rounds up to $1,642.86.
Use consistent inputs.
Include the costs you intend to absorb. Keep currencies consistent, and separately consider overhead, fees, taxes, returns, and any other expenses. A profitable-looking selection can still contribute too little toward your overall business costs.