30 October 2026

Inventory & Pricing Formulas: Margin, Markup, Reorder Point, Turnover

Four formulas decide whether your stock makes money: how you price it, when you reorder it, how much buffer you keep and how fast it sells. Here's each one with a worked example.

1. Margin vs markup

Markup is profit as a share of cost. Margin is profit as a share of the selling price. They are not the same number.

Markup % = (Price − Cost) ÷ Cost × 100
Margin % = (Price − Cost) ÷ Price × 100

Example: an item costs 100 and sells for 150. Profit is 50, so markup is 50% but margin is only 33.3%.

The costly mistake: adding a 30% markup when you wanted a 30% margin. You'd sell a 70 item at 91 instead of 100 — a 23.1% margin.

Use the free margin vs markup calculator →

2. Reorder point

The reorder point is the stock level at which you place your next order so it arrives before you run out.

Reorder point = (Average daily usage × Lead time in days) + Safety stock

Example: you use 10 units a day and your supplier takes 7 days. Lead-time demand is 70 units, plus safety stock.

3. Safety stock

Safety stock covers busy days and late deliveries. A simple, common method:

Safety stock = (Max daily usage × Max lead time) − (Average daily usage × Average lead time)

Example: (15 × 10) − (10 × 7) = 80 units. So the reorder point above is 70 + 80 = 150 units.

Use the free reorder point calculator →

4. Inventory turnover and days on hand

Turnover shows how many times you sell through your stock in a period. Days on hand shows how long your stock would last.

Turnover = Cost of goods sold ÷ Average inventory value
Days on hand = Days in period ÷ Turnover

Example: cost of goods sold of 120,000 for the year and an average stock value of 20,000 gives a turnover of 6 — about 61 days of stock on hand.

Good turnover varies a lot by industry, so compare against your own previous periods rather than a universal number.

Use the free inventory turnover calculator →

Let your inventory system do the math

In StockSimple you set each product's reorder level once and get a daily low-stock email. Stock value, reports and a dead stock report show where cash is tied up, and the same calculators are built into your workspace.