Small-Business Pricing: Margin, Markup, ROI & Break-Even

Markup and margin

Markup is profit over cost: (price - cost) / cost. Margin is the same profit over price: (price - cost) / price. A $60 item sold for $90 is a 50% markup but a 33% margin. Retail talks markup; accounting talks margin — and margin is always the smaller number.

Return on investment (ROI)

ROI measures whether money you put in came back with more: ROI = (gain - cost) / cost x 100. Spend $2,000 on stock and sell it for $2,600, and ROI = 600 / 2000 = 30%. It lets you compare very different bets — a marketing spend against new equipment — on one percentage.

Break-even

Break-even is the number of units you must sell to cover costs: fixed costs / (price per unit - variable cost per unit). If rent and salaries are $4,000 a month and each unit earns $16 after its own costs, you break even at 4000 / 16 = 250 units. Everything above that is profit.

How they connect

Margin sets how much each sale contributes; break-even turns that contribution into a sales target; ROI judges whether the whole venture is worth the capital. Raise your margin and the break-even count drops. Cut fixed costs and it drops again. The Margin, ROI and Break-Even calculators let you test these together.

Frequently asked questions

Which margin should I aim for? It depends on the industry — groceries run thin, software runs fat. Compare against typical margins in your field, not a universal number.

Is a high ROI always better? Not if the absolute amount is tiny or the risk is high — read ROI alongside the size and certainty of the return.

Do I include my own time in costs? For a real picture, yes — unpaid owner time hides the true break-even.