Pricing · 6 min read · reviewed 2026-10-01
$5.10 of gross profit on a $14.50 sale. Whether that is a 35% margin or a 54% markup depends only on the denominator, and the choice of denominator is not cosmetic — it decides whether a discount destroys your profit or merely trims it.
| Measure | How it is calculated | Value here |
|---|---|---|
| Gross profit | price − cost | $5.10 |
| Gross margin | (price − cost) ÷ price | 35% |
| Markup | (price − cost) ÷ cost | 54% |
| Net margin | (price − cost − selling costs) ÷ price | 29% |
| Break-even volume | fixed cost ÷ net profit per unit | 4,256 units |
Markup is useful for setting a price from a cost. Margin is the only one you can compare across products, because it is expressed against revenue and revenue is what pays the fixed costs. A 40% markup on a cheap accessory and a 40% markup on a container of furniture are not the same business; the margins will differ by a factor of two.
Rule of thumb worth internalising: at a 50% margin a 20% discount wipes out 40% of your gross profit. At a 25% margin the same discount wipes out 80% of it. The discount is the same; the margin is not.
Every margin figure above is only as good as the cost in it. If that cost is the FOB price, the margin is fiction — it excludes freight, duty, fees and the destination haul, all of which you have already paid before the goods can be sold.
On a typical low-tariff consumer shipment, landed cost runs 20–40% above FOB. Feeding FOB into a margin calculation therefore overstates margin by roughly that amount, and the overstatement is largest for the products that are hardest to ship — the bulky ones — which are exactly the products where the real margin is thinnest. It is a systematic error in one direction, which is the dangerous kind.
The sequence is fixed: compute landed cost per unit, then put that number in the margin calculator. Never the other way around.
Gross margin answers "how much did the goods make". Net margin answers "how much did I keep", and the difference is every variable cost of selling: sales commission, marketplace fees, payment processing, outbound freight, returns, and the sample you gave away in March.
Here 6% of selling costs takes $5.10 of gross profit down to $4.23, or 29% of the selling price. That is a 1.4 percentage point fall against revenue and a 12% fall against profit — which is why sellers who manage on gross margin are consistently surprised by their bank balance.
The distinction matters most when you are deciding whether to accept a large order at a thin margin. Gross margin says yes if it is above zero. Net margin says no if the fixed cost of servicing that account — a dedicated salesperson, a stocking commitment — exceeds the contribution.
Fixed costs do not care how much you sell. Given $18,000 a month of fixed cost and a contribution of $4.23 per unit, you need 4,256 units before the business is profitable and the first 4,256 units contribute nothing to profit at all.
This is the number to hold against a purchase order. If a supplier's MOQ is below your break-even volume, the order cannot pay for the overhead it triggers unless the volume arrives from somewhere else. If it is far above, you are committing working capital to inventory that will sit — and storage, insurance and the cost of the money are all fixed costs you just increased.
Run it the other way too: at a given volume, what margin do you need? That is the same calculation rearranged, and it usually produces a more useful answer than a target margin picked from an industry survey.
The sensitivity that matters is downward, because customers ask for discounts far more often than they offer more money. A 10% price cut takes the selling price to $13.05 and the net margin from 29% to 22%. A 10% increase takes it to $15.95 and the margin to 35%.
The asymmetry is the whole lesson: the same 10% in either direction moves the margin by roughly three times more than the price changed, because the cost is fixed and the whole change lands on profit. Any discount conversation is therefore a margin conversation, and it should be answered with the contribution per unit rather than with the percentage.
Note also what does not appear in the table: the cost of the capital tied up in the order. On terms of 60 days that is a real cost, and it is the reason a 30% margin on 90-day terms can be worse than a 22% margin on 30-day terms.
Each one runs the arithmetic above on your own numbers. The guide explains why the figure is what it is; the tool produces it.
Margin Calculator — the same engine that produced every figure on this page, with your carton, your route and your duty rate.
There is no universal number — it depends on how much of the selling cost you carry. A distributor selling to retailers who handle fulfilment can live on 20%; a brand selling direct needs 50% or more to cover acquisition and returns. Compare your margin against your own fixed-cost base, not against an industry average.
Gross margin is always divided by the selling price. Divided by cost it is markup. The two are different numbers from the same sale, and confusing them is the most common pricing error in small import businesses.
Margin = markup ÷ (1 + markup). A 54% markup is 54 ÷ 154 = 35% margin. Going the other way, markup = margin ÷ (1 − margin).
Yes, if you paid it — and on FOB terms you did. Only DDP prices, where the seller has bundled delivery, let you margin on a cost that already includes freight.
The guides that answer the question this one usually leads to.
Working back from a retail price to the maximum FOB you can pay, why subtraction fails on capped fees, and what the answer means in a negotiation.
Read next → CostingThe five-line landed cost method, one 40HQ to the US worked line by line, and the four charges most costing sheets leave out.
Read next → PricingWhy the deeper tier is not always cheaper per unit once setup costs, freight and carrying cost are counted, and how to find the true break-even quantity.
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