Profit margin vs markup
Margin and markup both describe the gap between what something costs you and what you sell it for, but they measure it against different numbers, and mixing them up is one of the most common pricing mistakes in small businesses.
- Profit margin is profit as a percentage of the selling price. It tells you how much of every sale you keep.
- Markup is profit as a percentage of the cost. It tells you how much you added on top of what you paid.
An item that costs 60 and sells for 100 has a profit of 40. That is a 40% margin (40 ÷ 100) but a 66.67% markup (40 ÷ 60). Margin can never reach 100%, while markup has no upper limit.
How to use the calculator
- Choose what you already know: the selling price, a target margin or a markup.
- Enter your cost per unit, including materials, purchase price and any direct costs you want covered.
- Enter the price, margin or markup. The other figures are calculated instantly.
- Copy the result to use in a quote, a price list or a spreadsheet.
Formulas
Profit = Price − Cost
Margin % = Profit ÷ Price × 100
Markup % = Profit ÷ Cost × 100
Price for a target margin = Cost ÷ (1 − Margin ÷ 100)
Price for a markup = Cost × (1 + Markup ÷ 100)
A quick conversion: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin), with both written as decimals. A 50% markup equals a 33.33% margin, and a 50% margin needs a 100% markup.
Examples
Setting a price: a product costs 60 and you want a 40% margin. The price is 60 ÷ (1 − 0.40) = 100. A common mistake is to add 40% to the cost, which gives 84 and only a 28.57% margin.
Checking a markup: a retailer marks a 60 item up by 50% to 90. The profit is 30, the margin is 33.33% and the markup is 50%.
More worked examples
Online store: a product that costs C$40 and sells for C$65 makes C$25 profit. That is a 38.46% margin but a 62.5% markup.
Common mistakes to avoid
- Adding the margin percentage to cost. A 30% markup is not a 30% margin. Use “Target margin” mode to get the correct price.
- Leaving out costs. Include shipping, packaging and payment fees in the cost, or your real margin will be lower.
- Forgetting discounts. A sale cuts margin faster than you might expect; check the effect with the discount calculator.
Sources and methodology
The calculations on this page follow these published standards and references. The code is covered by automated tests against known values.