Margin and markup are different

Profit margin is profit as a share of the selling price. Markup is profit as a share of the cost. The same sale gives two different percentages, which is why mixing them up leads to underpricing.

The formulas

  • Profit = selling price minus cost.
  • Margin % = profit divided by selling price, times 100.
  • Markup % = profit divided by cost, times 100.
  • Price for a target margin = cost divided by (1 minus margin as a decimal).
  • Price for a target markup = cost times (1 plus markup as a decimal).

A worked example

An item costs 60 and sells for 100. Profit is 40. Margin is 40 / 100 = 40 percent. Markup is 40 / 60 = 66.7 percent. If you wanted a 40 percent margin on a cost of 60, the price is 60 / (1 - 0.40) = 100. A 40 percent markup on the same cost would only give 84, which is a 28.6 percent margin.

Use the calculator

  1. Open the Profit Margin Calculator.
  2. Enter cost and price to see profit, margin and markup.
  3. Or enter cost and your target margin to get the price you need.
  4. Round prices to a sensible retail figure and re-check the resulting margin.

Do not forget hidden costs

  • Payment processing fees, shipping, packaging and returns.
  • Marketing spend and platform commissions.
  • Tax where it is included in the shown price. Use the GST / VAT Calculator to separate it first.
  • Your own time, for very small margins.

Rule of thumb

Margins vary widely by industry, so compare against similar businesses rather than a universal number. What matters is that your margin covers all costs and leaves the profit you need.