Commercial Production Guide
Pricing: Markup, Margin, and Service Models
Markup and gross margin are different, and the difference changes profit. Markup adds a percentage to cost; gross margin takes a percentage out of the selling price. Both are valid tools, but they are not interchangeable, and this site never tells you what margin to use: that decision belongs to your business and your market.
Category: Costing
Markup vs Gross Margin
Formula
Markup: Selling Price = Cost × (1 + Markup %)
Markup is calculated on the cost. A 40% markup on a cost of 100 gives a price of 140, and the markup is 40% of the cost.
The Margin and Selling Price calculator keeps the two formulas separate so neither is silently substituted for the other.
Formula
Gross Margin: Selling Price = Cost ÷ (1 - Margin %)
Gross margin is calculated on the selling price. A 40% margin means 40% of the price is profit: for a cost of 100, the price is about 167 and the profit is about 67.
Do not treat a markup percentage as a margin percentage; the same number means different money in each formula.
No prescribed margin
This guide explains the math and never tells you what margin or markup to use. Your margin depends on your costs, your market, your volume and your positioning, which only you can see.
Service Pricing Approaches, Explained Conceptually
A freeze-drying service can charge in several ways, and none is universally best: each shifts risk and clarity between the operation and the client. The models below are conceptual; the right one depends on the product, the volume, the effort and the market.
The main service pricing models:
- Per batch. A fixed price per machine load or per run. Simple to quote, but a 40 kg batch and a 10 kg batch cost very differently to run.
- Per wet weight. A price per kilogram or pound of fresh product in. Easy for clients to understand from farm or kitchen weights, but the service carries the risk of how long the batch takes.
- Per dry weight. A price per kilogram of finished product out. Aligns price with what the client actually receives, but requires a yield estimate or a trial first.
- Per tray. A price per tray loaded. Clearer than per batch when loads vary, and it rewards efficient loading.
- Per project. A fixed price for a defined piece of work: test, development, packaging design, a full production run. Best when scope is clear.
- Test run + production rate. A paid small trial to measure yield, cycle and quality, then a production rate built from the measured results. The most honest model for new products, and the one this center recommends considering first for unknowns.
Quotes after trials, not before
For products that have never been run, the cost truth appears only after a test: yield measured, cycle known, packaging decided. The quoting guide and the client trial guide show how a paid trial feeds an honest quote.
Pricing from Cost
Whatever the model, the sequence is the same:
- Know your cost per finished weight (guide) or per package (guide).
- Choose markup or margin, and apply it deliberately, never confusing the two.
- Check the result against the market and your volume; adjust the margin, not the math.
- Re-price when inputs change: food prices, electricity, labor, packaging or a measured yield change.
Frequently Asked Questions
What margin should I use?
This site does not prescribe one. Margin depends on your costs, market, volume and positioning. Compute your costs honestly, compare with what your market pays, and decide deliberately.
Is per-dry-weight pricing always best for the service?
No model is universally best. Per dry weight is transparent for the client but needs a yield estimate or trial first; per wet weight is easy to quote but shifts cycle risk to the service.
Why does markup vs margin matter?
Because the same percentage means different profit in each formula. Confusing 40% markup with 40% margin either underprices or overprices the job, depending on direction.
Key Takeaways
- Markup is calculated on cost; gross margin is calculated on selling price. Keep the two formulas separate.
- Service pricing models (per batch, per weight, per tray, per project, test and production) each shift risk and clarity; none is universally best.
- Quote from measured cost: cost per finished weight or per package, then deliberate margin or markup.
Related Guides
Continue through the Commercial Production Center with these related guides.