A service price has to cover labor and product and still leave margin. Subtracting product cost from the price gives the service margin; marking up from cost sets a price that hits a target margin.
The example
$95 color, $14 product.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | 95 − 14 | — |
| 3 | Service margin | → $81 |
The formula
The formula:
How it works
How it works:
- Service margin = price − product cost — what’s left to cover labor and overhead.
- Margin % = margin ÷ price — the share of price that isn’t product.
- To price for a target margin:
product_cost ÷ (1 − target_margin). - Track product cost as a % of service price — a rising ratio signals waste or under-pricing.
Price up from cost, not down from a guess. If color product runs $14 and you want product to be no more than 15% of price, the minimum price is 14 ÷ (1 − 0.15) = $16.47 just to cover product at that ratio — obviously you charge well above to pay the stylist. The point is to make the product-cost ratio a deliberate target, then catch services where it drifts high.
Try it: interactive demo
Service price and product cost.
Variations
Margin percent
Margin ÷ price:
Price for a target margin
From cost:
Product cost %
Product ÷ price:
Pitfalls & errors
Margin vs markup. Margin is on price; markup is on cost — don’t mix.
Labor separate. Service margin is before the stylist’s pay.
Zero price. Margin % on a $0 price gives #DIV/0!.
Practice workbook
Frequently asked questions
How do I calculate service margin in Excel?
How do I price for a target margin?
What's a good product cost percentage?
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