Markup and Margin Calculator
The two are constantly confused and almost never equal. Convert between them, or price from a target.
In short
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. A fifty percent markup gives a thirty three percent margin, not fifty. Pricing from the wrong one is a common and expensive mistake in small businesses.
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The two formulas
markup = (price - cost) / cost x 100
margin = (price - cost) / price x 100Same numerator, different denominator. Markup asks how much you added to what you paid. Margin asks how much of what you charged you keep.
Buy at 60, sell at 100. You made 40. That is a 66.7% markup on your cost and a 40% margin on your revenue. Both are correct and they are not interchangeable.
The mistake that quietly costs money
A supplier or a rule of thumb tells you to work on "30%". You take your cost and add 30%. You believe you have a 30% margin. You have 23%.
On a business turning over 200,000 a year, that seven point gap is roughly 14,000 of profit that was never priced in. It is not a dramatic error, which is exactly why it persists for years.
The fix is one line: to hit a target margin, divide by (1 minus the margin), never multiply by (1 plus it).
Common values worth memorising
| Markup | Margin | Multiply cost by |
|---|---|---|
| 25% | 20% | 1.25 |
| 33.3% | 25% | 1.333 |
| 50% | 33.3% | 1.5 |
| 66.7% | 40% | 1.667 |
| 100% | 50% | 2.0 |
| 150% | 60% | 2.5 |
| 233% | 70% | 3.333 |
The one to remember: doubling the cost gives a 50% margin, not 100%. That single fact prevents most pricing errors.
Why margin has a ceiling and markup does not
Margin is profit as a share of price, so it can approach 100% but never reach it. That would mean the goods cost nothing.
Markup has no upper limit. Buy something for 10 and sell it for 100 and the markup is 900%. This is why software and digital goods are usually discussed in margins: markup figures on a near zero cost become meaningless.
Gross margin is not profit
Everything above is gross margin, which covers only the direct cost of the goods. It does not include rent, wages, marketing, software, insurance or your own time.
A healthy gross margin and a loss-making business are entirely compatible, and it is a common shape for a small retailer. Net margin is what remains after everything, and it is usually a great deal smaller than people expect: supermarkets typically run on 2 to 4%.
A useful discipline when pricing: work out gross margin first, then check the resulting volume actually covers your fixed costs.
Discounting eats margin faster than revenue
This is the part that surprises people. On a 40% margin, a 10% discount does not cost you 10% of your profit. It costs a quarter of it.
Sell at 100 with a cost of 60 and you make 40. Discount to 90 and you make 30. Revenue fell 10%; profit fell 25%.
At a 20% margin the same 10% discount halves your profit. Which is why thin-margin businesses discount so cautiously, and why "we will make it up on volume" needs the arithmetic done before anyone commits to it.
Always work excluding tax
Sales tax and VAT are collected on behalf of the government, not earned. Including them inflates both figures and makes the business look healthier than it is. Strip tax out first with the VAT calculator, then calculate.
Frequently asked questions
What is the difference between markup and margin?
Markup measures profit against what you paid. Margin measures it against what you charged. Buy for 100 and sell for 150 and you have a 50% markup but a 33.3% margin. Both describe the same transaction from different ends.
Which one should I use?
Margin, for anything to do with the health of the business, because it tells you what share of revenue you keep. Markup is useful when pricing from a known cost. The danger is mixing them: applying a 30% markup when you needed a 30% margin leaves you 7 points short on every sale.
Why can margin never reach 100%?
Because margin is profit divided by selling price, and profit can never exceed the price. A 100% margin would mean the goods cost nothing. Markup has no ceiling: sell a 10 item for 100 and the markup is 900%.
How do I price for a target margin?
Divide the cost by one minus the margin as a decimal. For a 40% margin on a 60 cost, that is 60 divided by 0.6, giving 100. Multiplying the cost by 1.4 gives 84, which is a 28.6% margin and a common way to quietly underprice.
Does this include tax?
No, and it should not. Margins are calculated on figures excluding sales tax or VAT, because that tax is collected on behalf of the government rather than earned. Use the VAT calculator to strip it out first.