These three terms get confused constantly, and mixing them up leads directly to underpricing.
Landed cost
The true cost of a unit once it's in your hands — not just the factory price. Landed cost = unit cost + freight/shipping to you + duties/customs fees + any per-unit packaging cost. A product quoted at $4/unit that costs another $1.50/unit to ship and clear customs has a landed cost of $5.50, not $4 — price against the real number.
Don't stop at inbound freight and duties — a full landed cost also includes any per-unit inserts, poly bags, or branded packaging you add before the product reaches a customer, plus a pro-rated share of any inspection or compliance testing fee tied to the order. These are small individually but add up, especially on a lower-priced product.
Margin vs. markup (the most commonly confused pair)
Margin = profit as a percentage of the selling price. Markup = profit as a percentage of the cost. These are always different numbers for the same product.
Worked example: Landed cost = $5.50. You sell for $20. - Profit = $20 − $5.50 = $14.50 - Margin = $14.50 ÷ $20 = 72.5% - Markup = $14.50 ÷ $5.50 = 263.6%
Notice how different those two percentages are for the exact same numbers — when someone says "I want a 50% markup," that is not the same as "I want a 50% margin" (a 50% markup on $5.50 is a price of $8.25, which is only a 33% margin). Use the Margin & Markup Calculator to convert between them instead of doing this math by hand.
A second worked example, working backward from a target margin
Suppose you want a 70% gross margin (before marketplace fees and ad spend) on the same $5.50 landed-cost product. Margin is profit ÷ price, and profit is price − cost, so:
Price × 0.70 = Price − $5.50 → Price × 0.30 = $5.50 → Price = $18.33
Check: profit = $18.33 − $5.50 = $12.83; margin = $12.83 ÷ $18.33 = 70%. Notice this is a different price than the $20 example above (which produced a 72.5% margin) — small differences in target margin move the required price more than intuition suggests, which is exactly why it's worth calculating rather than guessing at a "round number" price.
Why this matters before you price anything
Your $20 selling price above hasn't yet accounted for marketplace fees, shipping to the customer, advertising, or returns — all of which come out of that $14.50 before you see real profit. That's the full picture the Product Profitability Calculator is built to model. Never price a product based on margin/markup against landed cost alone — always run it through a full profitability model first.
A quick reference table
| Landed cost | Target margin | Required price (approx.) | Resulting markup |
|---|---|---|---|
| $5.50 | 50% | $11.00 | 100% |
| $5.50 | 60% | $13.75 | 150% |
| $5.50 | 70% | $18.33 | 233% |
| $5.50 | 80% | $27.50 | 400% |
Notice how sharply required markup accelerates as target margin climbs toward 80-90% — this is a mathematical property of the margin/markup relationship (markup = margin ÷ (1 − margin)), not a pricing strategy tip, but it's worth understanding so a "just add a bit more margin" request from yourself or a stakeholder doesn't get treated as a small price change when it's actually a large one.
Common points of confusion
- "I want 50% margin" often actually means "I want to double my cost" — that's a 50% markup (cost + 50% of cost = 1.5x cost), not a 50% margin. Always clarify which one is meant.
- Gross margin is not the same as your final take-home profit — see Gross vs. Contribution vs. Net Margin for how fees, shipping, and ad spend further reduce gross margin down to what you actually keep.
- A high margin percentage on a very low-priced item can still be a low dollar profit — always sanity-check both the percentage and the absolute dollar profit per unit.