Question 1

What is keystone pricing?

Accepted Answer

Keystone pricing means doubling the wholesale cost to set the retail price, which is a 100% markup (and 50% margin). If you buy a product for $25, the keystone price is $50. This is a common starting point in retail, especially for clothing, accessories, and gift shops. Some retailers use double keystone (150%+ markup) for slow-moving inventory or triple keystone for specialty items.

Question 2

How do I calculate the wholesale cost from the retail price?

Accepted Answer

Divide the retail price by (1 + markup percentage as a decimal). For a $50 item with a 100% markup: $50 / (1 + 1.00) = $25 wholesale cost. Alternatively, if you know the margin: Wholesale = Retail x (1 - Margin). For a $50 item with 50% margin: $50 x (1 - 0.50) = $25. Both methods give the same result because 100% markup and 50% margin are equivalent.

Question 3

What is the difference between vendor markup and retailer markup?

Accepted Answer

Vendor markup is what the vendor adds to their production cost before selling to you (the retailer). Retailer markup is what you add to the vendor's price before selling to the consumer. Products often go through multiple markups in the supply chain: manufacturer to distributor (20-40%), distributor to retailer (15-30%), and retailer to consumer (50-100%). Each party adds their own markup to cover costs and profit.

Question 4

Does markup include overhead costs?

Accepted Answer

Markup is typically calculated on the direct product cost (what you pay the vendor) and does not directly include overhead like rent, labor, and utilities. Your markup needs to be high enough to cover not just the product cost but also these overhead expenses. That is why the gross margin from markup is always higher than your net margin. A product with 50% gross margin might only yield 10-15% net margin after all expenses are accounted for.

Vendor Markup Calculator

Frequently Asked Questions