Margin, markup, channels and break-even

What it is

The Selling prices panel in the Costs tab starts from the recipe's per-unit cost and helps you set a price with confidence. To use it well you need four concepts clear in your head: margin, markup, sales channels, and break-even. This page explains each one with the exact figures and formulas AreaCacao applies.

Margin vs markup

This is the most common pricing mistake, and the two are not the same thing:

• Margin — profit measured against the selling price. It's what you keep out of every euro you charge.
• Markup — profit measured against the cost. It's how much you add on top of cost to reach the price.

A 50% markup sounds the same as a 50% margin, but it isn't: a 50% markup leaves you only a 33% margin. The panel shows both at once so you don't conflate them: below Target margin (%) it surfaces the Equiv. markup label and the note "A N% markup = N% margin".

Margin ↔ markup conversion table

Read the table like this: to keep a 50% margin you have to apply a 100% markup (double the cost). The classic retail keystone (doubling cost) lands exactly on a 50% margin.

Target-margin pricing

The panel doesn't ask you for the price directly: you tell it the target margin you want to keep, and it works out the price. The formula is:

Price = Cost / (1 − margin)

With a €4.00 cost and a 40% target margin: 4 / (1 − 0.40) = €6.67. If you set a manual price instead, the panel shows you the actual margin that price leaves you.

Sales channels

Each channel can carry a different price because its cost structure and middlemen differ. The panel ships with three preset channels, and you can add your own with Add channel:

• Direct (DTC) — you sell straight to the end customer. You keep all the margin, but you take on the acquisition and fulfilment cost.
• Wholesale — you sell to a business that resells. Lower price, but volume and recurring orders.
• Retail — sold in a physical store, your own or a third party's. It usually carries the highest markup because it absorbs the cost of location and service.

For each channel you set its own Target margin (%) (or a Manual price), and the panel computes the Suggested price. The Equiv. markup note travels with every channel so you compare apples to apples across them.

Break-even

Break-even is how many units a month you must sell to cover your fixed costs. It's calculated like this:

Units = monthly fixed costs / contribution margin per unit

The Contribution margin/unit is what each unit adds toward covering the fixed costs: price − variable cost per unit. The panel shows it next to Break-even as N units/mo.

Healthy food cost

For pastry and chocolate, a healthy ingredient cost (food cost) runs around 25–35% of the selling price. The panel flags it with "Food cost N% — within the healthy range (25-35%)" or "… — outside the healthy 25-35% range".

When to use each concept

Related terms