What is Keystone Pricing? Everything You Need to Know

If you are a retailer or just a person who is interested in e-commerce and perhaps wants to open a business in the future, then you are most likely already familiar with some pricing strategies.

In this article we will talk about keystone pricing. This is one of the simplest pricing strategies, and it can suit you whether you already have a developed business or you’re at the beginning of your journey. We will analyze the pros and cons, talk about how to use this strategy correctly, give examples, and compare it with other pricing strategies. Updated for 2026, the guide also covers a risk of automatic repricing: a keystone price that slips below a brand’s minimum advertised price.

Keystone pricing is a pricing strategy in which the mark-up on goods is 100% of the wholesale value. That is, you are selling a product for twice the wholesale price. The calculation of the price of a product with such a strategy has the following form:

Keystone price = wholesale price x 2

Keystone pricing has been around for quite some time. This strategy began to be used even before the invention of computers, when there were no resources to calculate revenue, costs, and so on. All calculations were carried out manually, so keystone pricing was as convenient as possible from the point of view of mathematical calculations, as well as quite profitable from the point of view of revenue.

Keystone is a form of cost-based pricing: the price comes from what you paid for the product, not from demand or competitor prices. It is also the simplest version of cost-plus pricing, with the markup fixed at 100%.

Let's analyze this strategy by example: let's say you are a jewelry seller. You buy earrings for $20 per pair. You will sell them for $40, and this will be your retail price. Thus, you get a markup of 100%.

So, here the gross profit of $20 is 100% of the cost price and 50% of the final retail selling price. That is why keystone is described both as a 100% markup and as a 50% margin: markup is measured against cost, margin against the selling price (more on markup vs. margin in our separate guide).

But do not forget that this $20 will not go completely into the retailer’s pocket. It also has to cover marketing, shipping, packaging, rent and other operating costs, so your net profit will be lower than the gross margin.

Let's analyze some more examples in more detail. Let's say you are the owner of an online school supplies store. You buy notebooks from the manufacturer wholesale for $1. You buy 1,000 notebooks for a total price of $1000. So you will be selling this product for $2 apiece. This will be a 100% markup: keystone pricing.

The wholesale price may depend on multiple factors, including the labor cost, the material cost, and delivery fees. Still, your price depends only on the wholesale price.

Again, the term "keystone pricing" has been around for a long time, and the name is usually traced to the US jewelry trade of the 1890s (see the FAQ below). The easiest way to see the logic is to follow one product through the supply chain, where it picks up two markups: the first is the manufacturer’s markup, and the second is the retailer’s markup. Let’s say a manufacturer makes boots and spends $25 on materials. For their skills and time, they add a markup of 100%, so the boots now carry a wholesale price of $50. The retailer buys them for $50 and also adds a markup of 100%. So the customer buys these boots for $100.

Each party keeps a 50% gross margin on its own selling price, and the strategy is still used to this day.

Like any other strategy, keystone pricing has its pros and cons:

• It ignores what the category can bear. Some categories run on markups far below 100%. Grocery is a famously thin-margin business: FMI reported industry profit margins of 1.6% in 2023. Best Buy, one of the largest US electronics retailers, reported a gross profit rate of 22.6% for fiscal 2025, which is an average markup of roughly 29%. Doubling the cost of groceries or smartphones would price you far above competitors, and the goods would sit in the warehouse. Categories built on brand or exclusivity, such as fine jewelry, prestige beauty and designer accessories, can often support markups above 100%, so a flat 2x leaves money on the table. For them, premium pricing is usually a better fit.
• It ignores demand and competitors. The formula looks only at your cost. If shoppers can find the same item cheaper elsewhere, or would gladly pay more, a price set at twice the cost reflects neither.
• A 50% margin is not always enough. It has to pay for rent, staff, shipping, returns and marketing. For products that are expensive to store, deliver or advertise, keystone may leave little or no net profit.

Keystone pricing is quite easy to use, but before applying this strategy, you need to research your market, understand what margins your competitors have, and what the average margins on the market are.

Since the keystone pricing method was created and implemented in brick-and-mortar stores, it stands to reason that traditional retailers find the most success using this strategy.

If your products bring pleasure to customers, even if they’re everyday household goods, customers will be willing to overpay, provided they really like the product.

You should also not lose sight of the fact that the price category of your products identifies your brand. If you want to establish your store as a luxury option, then you will need other pricing strategies, such as value-based pricing, where the price follows what customers are willing to pay rather than what the product cost you. If your prices are low, then the buyer may associate your brand with something low-quality and cheap. So it's up to you to decide which category your brand will be in.

The effectiveness of using keystone pricing may depend not only on the type of goods, but also on where and how you sell them.

Physical stores pay for rent, store staff and in-store logistics, and the 50% keystone margin was designed to absorb these costs. Online stores have their own costs (fulfillment, shipping, returns, marketplace fees and paid traffic), and they also face something a high-street shop rarely did: shoppers compare prices across dozens of sellers in seconds. If the same product is available elsewhere for less, a price set at twice the cost will lose the sale, because a low price is often the main reason people order from a particular online store.

So keystone usually makes the most sense for physical stores and for unique or private-label goods, and less sense for branded products that many online retailers sell at the same time.

If you are a discounter, meaning people really only shop with you because of your deals, then a keystone policy will not work for you. People want to see low prices and big deals.

Some retailers respond by inflating the reference price instead of lowering the real one. A product costs the retailer $30, its keystone price is $60, but the tag says "MSRP $80, now $60". The shopper sees a 25% discount, although $60 is the store’s regular price and nobody ever paid $80.

Comparisons with an inflated MSRP are risky. Under the FTC Guides Against Deceptive Pricing, a former or suggested price used in a comparison must be one at which the product was actually offered or sold in meaningful volume. A genuine discount starts from a price you really charged, which is how markdown pricing works.

Many brands set a minimum advertised price (MAP): the lowest price a reseller may show in ads, on product pages and in shopping feeds. A keystone formula knows nothing about that floor. When your cost goes down, the advertised price goes down with it and can end up below the brand’s MAP pricing policy.

Here is how it happens. You buy a product for $50 and list it at $100. The brand’s MAP is $95. The supplier gives you a one-off 10% discount, your cost falls to $45, and the pricing script recalculates the listing to $90. Your store is now $5 below MAP, although nobody decided to cut the price. Depending on the brand’s terms, that can mean a warning, lost marketing funds or a suspended account.

The fix is a simple rule: price = the higher of the keystone price and MAP. Brands watch reseller prices with MAP monitoring tools, so check MAP compliance every time costs, exchange rates or supplier terms change.

Setting a keystone price takes one step: double the wholesale cost of the item, so a product that costs you $50 sells for $100. The resulting 50% is often called the initial markup, or IMU, because retailers usually express markup as a share of the retail price. It is the margin you start with before markdowns, discounts and shrinkage reduce it.

Treat the keystone price as a first draft. Once the product is on sale, the data will show whether it was right. If sell-through after the first few weeks is well below plan, or a competitor lists the same item for less, the price needs to come down. If the item sells out quickly at full price, you can probably charge more. Price optimization software uses sales and market data to suggest a better price for each SKU, and dynamic pricing rules can apply changes automatically when competitor prices or stock levels move, with MAP and your minimum margin set as limits.

As you can see, keystone pricing is quite convenient, but it is not always suitable for everyone. This approach was highly effective before, but now a lot has changed, and in order to create a high-quality pricing strategy that will suit your business, you need to take into account many different factors.

When creating a pricing strategy, it is important to analyze not only your own prices, but also your competitors’ prices. Price Intelligence Software can help you with this process.

The most widely cited explanation traces the term to Keystone, a US jewelry trade magazine. In 1896, readers complained that the magazine printed dealers’ costs, which customers could see when copies were left on jewelers’ counters. Over time, "keystone" came to mean a retail price of which half is the wholesale cost, in other words a price set at double the cost.

Keystone wholesale means that the goods already carry a 100% markup when you buy them (the manufacturer doubled its cost), and you add another 100% markup when you sell them. The manufacturer makes a markup and you make a markup, so the final retail price is about four times the manufacturer’s production cost.

A keystone markup means adding 100% to the wholesale cost of the goods, so the retail price is twice what you paid. For an item bought at $15, the keystone retail price is $30.

The margin from keystone pricing is 50%.

It is a good starting point rather than a complete strategy. Keystone works well for independent stores, unique or private-label goods and large catalogs where speed matters. In price-transparent categories and for premium products, check the keystone price against competitor prices and your own sales data, because a fixed 2x markup ignores both.

Yes. If your cost falls, for example after a supplier discount or a better exchange rate, and your system recalculates the price as cost x 2, the new advertised price can drop below the brand’s MAP. A $45 cost gives a $90 keystone price, which breaks a $95 MAP. Setting MAP as the minimum in your pricing rules prevents this.