Profitability
Price from a target margin
The inversion used when a margin has been decided and the price is unknown. Never add the margin percentage to cost; divide by what is left.
The Formula
P = C / (1 - m)
The inversion used when a margin has been decided and the price is unknown. Never add the margin percentage to cost; divide by what is left.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| C | Cost of what will be sold | currency | Include every variable cost attached to the sale before applying this. |
| m | Target margin as a decimal | ratio | 0.25 for a 25% target. Values at or above 1 make the formula meaningless. |
| P | Price to charge | currency | The revenue figure that delivers the target margin exactly. |
What Each Symbol Means
Ccurrency
Cost of what will be sold
Include every variable cost attached to the sale before applying this.
mratio
Target margin as a decimal
0.25 for a 25% target. Values at or above 1 make the formula meaningless.
Pcurrency
Price to charge
The revenue figure that delivers the target margin exactly.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate profit margin page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Profit Margin, filed under Business. Every number the guide produces comes from substituting into this one line.