Three common methods for setting price from cost: target markup, target margin, and target dollar price. Each has a right context. Pick one on purpose, not by default.
Method 1: Target markup
price = cost × (1 + markup%)
Cost-centric. You know your cost, you pick a markup, you get a price. 50% markup on $10 → $15. 100% markup (keystone) → $20. Fast, intuitive, used by most retail.
Best for: retail with known wholesale costs, hardware stores, grocery, restaurants (food cost × 3–4 = menu price).
Method 2: Target margin
price = cost / (1 − margin%)
Profit-centric. You know what margin you need to cover overhead and profit, and you reverse-engineer the price. 40% margin on $10 cost → $10 / 0.60 = $16.67.
Best for: SaaS, services, anywhere with fixed margin targets. Financial planning wants margin metrics; this method produces prices that hit those targets directly.
Method 3: Target dollar price
price = $X (from market research, not cost math)
Customer-centric. You know what the customer will pay, and you work backwards. If "$9.99 combo meals" is the market anchor in your category, your job is engineering the cost structure to make $9.99 profitable. Reverse-engineering from price to allowable cost.
Best for: impulse purchases, price-anchored categories, competitive markets where the customer already knows the "right" price.
The honest path
Most small businesses end up using target markup because it's easiest. Most mature businesses use target margin because it ties to financial reporting. The most sophisticated pricing combines all three — target markup as a floor, target margin as a goal, dollar anchors as a ceiling.
Enter cost + target margin %. Out comes the exact price that hits your target.