One sale, two percentages
An item costs you $30 and you sell it for $50, so you make $20 on each sale. Your margin is 20 ÷ 50 = 40.0%: the share of the selling price you keep. Your markup is 20 ÷ 30 = 66.7%: how much you added on top of the cost. Both describe the same sale; they just divide by different numbers.
The mistake this causes
Mixing the two up is a common pricing error. Suppose you want a 40% margin on an item that costs $30, and you add 40% to the cost. You charge $42, make $12, and your margin is 12 ÷ 42 = 28.6%, well short of the 40% you aimed for. To earn a 40% margin, divide the cost by (1 − 0.40): 30 ÷ 0.60 = $50.
Converting between them
- From markup to margin: margin = markup ÷ (1 + markup). A 50% markup gives a margin of 0.5 ÷ 1.5 = 33.3%.
- From margin to markup: markup = margin ÷ (1 − margin). A 40% margin needs a markup of 0.4 ÷ 0.6 = 66.7%.
The margin calculator and the markup calculator both work in either direction: enter a price and a cost, or a cost and the percentage you want.
When to use which
- Margin connects directly to your income statement: gross profit divided by revenue is a margin. Use it when you compare pricing with your overall gross profit margin or set profit targets.
- Markup is convenient when you build a price up from a cost, for example when a supplier’s price changes.
- Whichever you use, say which one you mean, especially when you share prices or targets with others.
Summary
| Margin | Markup | |
|---|---|---|
| Formula | (Price − Cost) ÷ Price | (Price − Cost) ÷ Cost |
| Based on | Selling price | Cost |
| $30 cost, $50 price | 40.0% | 66.7% |
| Can it exceed 100%? | No | Yes |