Target Price Calculator

Target Price: The Practical Link Between Costs and Profitability

A target price is a price you choose with intent. Instead of guessing, matching competitors without context, or using a vague rule of thumb, you start with a profitability objective and work backward to a price that can realistically support your business. For a product business, that objective might be a specific profit per unit, a target gross margin across a category, or a markup rule that ensures predictable returns. For a service business, it might be a target hourly contribution after platform fees, overhead allocation, and taxes.

The simplest version of target pricing is “cost plus profit,” but the real world adds complexity. Selling fees can be a percentage of your price. Overhead may not be directly tied to a unit. VAT or sales tax can confuse pricing conversations if customers focus on the tax-inclusive total. Rounding can improve conversion while quietly changing profit. This target price calculator is designed to bring those factors into one model, so your target price aligns with the results you actually keep.

What You Should Include in Cost Before Setting a Target Price

Target pricing works best when you define cost carefully. Many businesses only consider the obvious cost, such as the purchase cost of inventory or materials. That is a starting point, but it is rarely the full picture. The most useful cost concept for pricing is total unit cost: the direct unit cost plus an allocation of overhead and any fixed per-unit selling fees.

Direct unit cost can include raw materials, purchased inventory, direct labor, packaging, and any shipping costs that you treat as a cost of sale. Overhead includes rent, salaries, utilities, software subscriptions, insurance, and admin expenses. Because overhead is not naturally per unit, you typically allocate it by expected volume. A simple overhead-per-unit estimate can prevent a major pricing mistake: selling many units at a “profit” that does not cover the business.

Fixed selling fees per unit are also part of the cost base. These can include marketplace listing fees charged per item, fulfillment fees, labeling costs, or fixed payment charges. When these fixed fees are separate from percentage-based fees, it is more accurate to treat them as part of unit cost before solving your target price.

Profit per Unit vs Margin vs Markup: Choosing the Right Target

There are three common ways to express profitability targets, and each one implies a different way of thinking about pricing. All three can be valid, but they answer different questions.

Profit per unit

Profit per unit is the most direct target: how much money you want to keep from each sale after costs and percentage-based fees. This is useful for businesses that need a predictable contribution amount per sale to fund operations or growth, or for products with stable demand where a fixed profit target makes planning easier.

Margin

Margin is profit as a share of price. It is widely used in financial reporting because it ties profit to revenue and makes it easy to compare performance across products and channels. If your strategy is to maintain category margins, or if you plan promotions and want to see how lower prices change profitability, margin targets are often the clearest.

Markup

Markup is profit as a share of cost. It is common in retail and distribution because it supports quick price creation: price is cost multiplied by a factor. Markup targets can be convenient, but they can also be misleading if your costs are incomplete or if percentage-based fees remove more revenue than expected.

Why Percentage Fees Require “Solving” the Price

The modern selling environment often includes fees that scale with your selling price. Payment processing, marketplace commissions, delivery platform fees, and affiliate commissions are typically charged as a percentage of the price. This matters because profit is not simply price minus cost. Net revenue becomes price minus a percentage of price. If you ignore that relationship, your calculated “profit” is overstated and your target price is too low.

A target price calculator should solve for the price that meets your goal after the fee is removed. If you want a fixed profit per unit, the price must be high enough that net revenue, after the percentage fee, covers total unit cost and still leaves the desired profit. If you want a margin target, the price must be high enough that profit divided by price equals your target after fees and costs are accounted for.

Break-even Pricing: Your Sustainable Floor

Break-even price is the minimum price that covers your total unit cost after percentage-based fees. It is a useful anchor in any pricing discussion. If the market will not support your break-even price, the issue is not that your markup is too small. The issue is that the current cost structure and channel fees make the offer unsustainable at that market price. In that case, your options typically include reducing costs, improving unit economics, changing channels, bundling, upselling, or repositioning the offer.

Break-even is not a “good price,” but it is a clear boundary. Pricing below break-even might make sense temporarily as a strategic loss leader, but it should be done intentionally with a plan, not accidentally.

VAT and Sales Tax: Pricing Clearly Without Mixing Profit and Tax

VAT and sales tax are often the source of confusion in target pricing. Customers care about the total they pay, while businesses usually set a base price excluding VAT and then apply tax at checkout. Because VAT and sales tax are typically collected and then remitted, they usually do not increase profit. This tool separates the base price decision from the tax-inclusive total so you can price for profitability while still knowing the customer-facing amount.

If you operate in markets where the displayed price must include VAT, you can still treat the calculator’s ex-VAT price as the “net price” you keep before tax, and interpret the incl-VAT value as your displayed price. The key is consistency: define what your base price represents and use the same definition across products.

Rounding and Price Psychology Without Losing Control of Margin

Numbers are not only arithmetic; they are communication. Customers respond differently to a price of 99 versus 100, or 9.95 versus 10.00, even though the difference is small. Many businesses apply rounding rules to create a cleaner price list, consistent tiering, or psychological price endings.

Rounding matters because it changes the actual profit after costs. In some cases, rounding up improves profitability and can create extra buffer for discounts. In other cases, rounding down can remove the profit you were relying on, especially if your margin target is tight. This calculator applies rounding after solving your target price so you can see the real impact on profit, margin, and markup.

Target Pricing for Promotions and Discounts

Promotions often fail because the price was not designed with enough margin to discount safely. If you expect to run discounts, your target price must include room for those discounts while still achieving the minimum margin you require. A practical approach is to set a standard target price that supports your business, then define the lowest promotional price you can offer without dropping below a minimum acceptable margin.

You can use the profit-per-unit mode to create a contribution floor, or the margin mode to maintain category-level profitability. Then, when planning promotions, compare the discounted price to break-even. If the discounted price is too close to break-even, you may need to reduce discount depth, change the offer, bundle items, or focus the promotion on customer acquisition where lifetime value justifies short-term margin compression.

How Volume Assumptions Change the “Right” Target Price

Some businesses can accept lower profit per unit if high volume is realistic, while other businesses require higher profit per unit because volume is limited or customer acquisition costs are high. This is why goal-based pricing matters. If you have a total profit goal, the required profit per unit changes based on expected units. Overestimating units leads to underpricing. Underestimating units can push prices above what the market will accept.

The Goals & Pricing Table tab helps you test these assumptions. You can set a total profit goal and see the required price for different unit volumes. This is especially useful for new products, seasonal items, and services where demand can vary. Seeing a range of required prices makes risk visible: if your required price is highly sensitive to volume, you may want to build more margin buffer or consider a different strategy.

Competitive Reality: Using Target Price as a Floor, Not a Blind Rule

Cost-based pricing can produce a price that is either below or above what the market is willing to pay. That does not mean the calculator is wrong. It means cost-plus logic is only one part of pricing. The market sets constraints. Competitors set reference points. Your differentiation sets willingness to pay.

A strong workflow is to use target pricing to establish a sustainable floor and a desired target, then compare that to market prices. If your target is below market, you may have an opportunity to capture more value by improving positioning, bundling, or highlighting differentiation. If your target is above market, you need to improve unit economics or change the offer rather than forcing a price that customers reject.

Common Target Pricing Errors and How to Avoid Them

• Leaving out overhead: the product looks profitable but the business is not.
• Ignoring percentage fees: net revenue is lower than expected and profit targets are missed.
• Confusing margin and markup: the chosen percentage produces the wrong target price.
• Rounding down without checking: small changes erase your buffer.
• Mixing tax and profit: the customer total is mistaken for revenue kept by the business.

Using This Target Price Calculator as a Repeatable System

The most valuable outcome of target pricing is consistency. When you define costs the same way, apply the same fee logic, and choose clear targets, your pricing becomes easier to manage. It becomes simpler to add new products, adjust prices after supplier changes, and plan promotions without guessing.

Use the profit tab when you want a specific contribution per unit. Use the margin tab when you manage profitability as a percentage of revenue. Use the markup tab when you need a quick cost-based rule. Use the goals tab when you want to test feasibility against unit volumes or revenue targets. Together, these modes give you multiple ways to approach the same question: what price do I need to make this work?

Final Notes

Target pricing is not about chasing a perfect number. It is about clarity. When you can see how costs, overhead, fees, and tax presentation interact, you can set prices that are defensible, sustainable, and aligned with your business goals. Use this calculator to test scenarios, validate break-even floors, and build price confidence before committing to a pricing strategy.