# 14.12: Cost-Oriented Pricing Equations

- Page ID
- 45213

Learning Objectives

- Using cost-oriented pricing equations, calculate the retail price, the cost, and the markup percentage of a product

We touched on this topic briefly in an earlier section when we calculated the markup of an item costing $4.00. We also discussed the concept of keystone pricing, which is simply a straight 50% markup on all items regardless of cost. We can easily calculate the different components of retail pricing using known variables.

To **calculate the retail price based on cost** requires knowing your markup objective. Markup, again, is the difference between what the retailer paid to a vendor for the product and the price at which they sell it to their customers. So for a target 53% markup on an item costing $9.00, we will need two steps. First, we need the “cost complement” of the markup which is calculated as:

Cost Complement = 100% − Markup

Cost Complement = 100% – 53%

Cost Complement = 47% or .47

Then we simply divide the cost of the product by the cost complement to arrive at the retail price.

Retail Price = $9.00 / .47

Retail Price = $19.15

**To calculate markup percentage based on cost and retail price**, we use the formula discussed earlier:

*Retail price minus cost price divided by retail price*

So if your item cost is $4.00 and you sell it for $10.00, you would calculate markup as:

($10.00 $4.00 = $6.00) /$10.00 = .6 or 60%

Finally, **to calculate cost based on retail price and markup **with a retail price of $25.00 and a markup of 55%, we would use this formula:

Cost = Retail price * Cost Complement

Cost = $25.00 * .45

Cost = $11.25

Practice Questions

## Contributors and Attributions

- Cost-Oriented Pricing Equations.
**Authored by**: Bob Danielson.**Provided by**: Lumen Learning.**License**:*CC BY: Attribution*