How to calculate the selling price of a product: formula, margin and common mistakes

Knowing how to calculate the selling price of a product is one of the most important decisions in a business. A common mistake is adding a percentage to the cost and thinking that's the margin: if a product costs you CLP 6,000 and you add 40%, you sell it for CLP 8,400, but your real margin is only 28.6%. Here we explain the correct formula in 4 steps, and you can run the numbers instantly with our margin calculator.

CLP 8,400

Adding 40% to cost

real margin of 28.6%

CLP 10,000

With the margin formula

real margin of 40%

CLP 1,600

Difference per unit

that you don't earn

Source: InfoByData calculation with a cost of CLP 6,000

View the data as a table

Adding 40% to cost	CLP 8,400 | real margin of 28.6%
With the margin formula	CLP 10,000 | real margin of 40%
Difference per unit	CLP 1,600 | that you don't earn

Step 1: calculate the cost of each unit

The starting point for knowing how to calculate the selling price is the variable cost per unit: what it costs you to produce or buy each product. It includes raw materials or the supplier's price, packaging, shipping and sales fees. Always use amounts before VAT, because VAT is not your cost: you pay it and recover it.

Step 2: apply the margin formula

This is the formula for how to calculate the selling price from the margin you want to earn:

Selling price = cost ÷ (1 − margin)

With a cost of CLP 6,000 and a 40% margin: 6,000 ÷ 0.6 = CLP 10,000. Of that CLP 10,000, CLP 4,000 is profit: exactly 40% of the price.

Margin and markup are not the same

Concept	Formula	With cost CLP 6,000 and price CLP 10,000
Margin	(price − cost) ÷ price	40%
Markup	(price − cost) ÷ cost	66.7%

Margin measures what share of the price is profit. Markup measures how much you added to the cost. That's why a 50% markup equals a margin of only 33.3%. When a supplier or partner talks about "making 50%", ask whether they mean margin or markup.

Step 3: add VAT to the final price

In Chile, the price consumers see includes 19% VAT (IVA), under article 14 of Decree-Law 825. If your net price is CLP 10,000, the retail price is CLP 11,900. To add or remove VAT from other amounts, use our VAT calculator.

Step 4: check your break-even point

A good margin is no use if you don't sell enough to cover your fixed costs: rent, salaries, utilities. The break-even point tells you how many units you need to sell each month:

Units = fixed costs ÷ profit per unit

With fixed costs of CLP 800,000 and a profit of CLP 4,000 per unit, you need to sell 200 units a month to avoid losing money. Everything you sell above that is profit.

%Free toolFree margin calculator: selling price, markup and break-even pointEnter your product’s cost and the margin you want, and get the selling price with and without VAT, the markup and how many units you need to sell each month.Use tool →

Common mistakes when calculating the selling price

1. Adding a percentage to the cost and calling it margin. This is the most common mistake: it confuses markup with margin.
2. Forgetting variable costs. Shipping, packaging or the payment platform's fee reduce your profit per unit.
3. Calculating with VAT included. VAT isn't your income; if you count it as profit, you overestimate your margin.
4. Ignoring competitors and customers. The formula gives you a floor; the final price also depends on what your customer is willing to pay.

Once you have your numbers, connect pricing to your sales strategy: our guide to implementing a data-driven strategy in a small business shows how to use sales data to decide.