Pricing glossary
The terms that decide price in retail and distribution, each with a short definition, the calculation that solves it and the mistakes it usually causes.
Markup, contribution margin and COGS are used every day in any operation that forms prices, and almost always with meanings that do not match from one room to the next. Each page here defines one of them, shows the calculation with numbers and names the mistakes it usually produces.
It is not a dictionary: it is the vocabulary of those who decide price, written by people who spend their days calculating margin in retail and distribution.
The terms that decide price
Seven definitions, in the order in which each depends on the one before. Each opens on its own page, with the formula, a worked example and the mistakes the term usually produces.
- MarkupMarkup is the index that turns cost into selling price: it reserves, inside the price, room for taxes, expenses and margin, and what is left of that reservation is what pays for the cost of the product.What is markup
- Contribution marginContribution margin is what is left of an item's price after its cost and everything that only exists because it was sold: tax, commission, freight and the cost of payment terms. That leftover is what the operation uses to pay fixed expenses and, after that, to make a profit.What is contribution margin
- COGSCOGS is the cost of goods sold (CMV, in Brazilian accounting): what it cost, at acquisition price, exactly the goods that left inventory and became sales in a period — and not what was bought within it.What is COGS (cost of goods sold)
- Break-even pointThe break-even point is the revenue at which the operation stops losing money without yet making a profit: the one where the sum of the period's contribution margins pays exactly its fixed expenses.What is the break-even point
- Product mixProduct mix is the set of items the operation sells and, above all, each one's share of what was sold: it is the composition of sales that decides the month's result, not the size of the catalog.What is product mix
- Price elasticity of demandPrice elasticity of demand measures how much the quantity sold of an item reacts to a change in its price: it is the percentage change in units divided by the percentage change in price.What is price elasticity of demand
- Dynamic pricingDynamic pricing is changing an item's price over time according to defined rules — replacement cost, inventory, demand and competition — instead of keeping it fixed until someone remembers to review it.What is dynamic pricing
The calculations, already done
Two open tools, with no sign-up and no email before the result. The definitions above explain what each index means; these two pages do the calculating.
- Free toolMarkup calculatorEnter taxes, expenses and the margin you want, and it returns the divisor markup, the multiplier and the item's selling price.Open the calculator
- Free toolSelling price calculatorAdd cost and freight, enter taxes and commission, and it breaks the price into parts that add up to the total — showing how much of each real is still yours.Open the calculator
Further reading
The blog covers the same subjects with the whole case: the operation, the numbers and what changed afterwards.
The seven terms, calculated item by item and every week
None of these calculations is hard for a single product. What is hard is redoing all of them across thousands of items every time a cost changes, which is why, in practice, the price ends up being inherited from the previous month with an adjustment on top.
RevPrice does that work: it recalculates markup, contribution margin and break-even point on every incoming invoice, shows the effect of a discount before it is given and warns when an item starts selling below the floor.
Want to see this in your operation?
A conversation with people who calculate retail margin every day, with your numbers on screen.