Markup is profit as a percentage of cost; margin is profit as a percentage of the selling price. Buy for 600 and sell for 1,000: profit is 400, markup is 400 ÷ 600 = 66.7%, margin is 400 ÷ 1,000 = 40%. To get a target margin, use Price = Cost ÷ (1 − margin): for a 40% margin on a 600 cost, price = 600 ÷ 0.6 = 1,000.
A shop owner buys a kettle for 600, adds 40% and sells it for 840, then tells the accountant the margin is 40%. It isn’t. It’s about 28.6%. Nobody did anything wrong with the arithmetic; they just used one word for the other.
Two numbers, two bases
- Markup = profit ÷ cost × 100
- Margin = profit ÷ selling price × 100
The profit is the same; only the number you divide by changes. Since the selling price is always bigger than the cost (if you’re making money), margin is always smaller than markup.
One product, both numbers
| Cost | Price | Profit | Markup | Margin |
|---|---|---|---|---|
| 600 | 840 | 240 | 40% | 28.6% |
| 600 | 1,000 | 400 | 66.7% | 40% |
| 600 | 1,200 | 600 | 100% | 50% |
A 100% markup (doubling the cost) is only a 50% margin. And a margin can never reach 100%, because that would mean the item cost nothing.
Conversion table
Margin = markup ÷ (1 + markup). Markup = margin ÷ (1 − margin).
| Markup | Margin |
|---|---|
| 10% | 9.1% |
| 20% | 16.7% |
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
| 150% | 60% |
Pricing for a target margin
If your business needs, say, a 35% margin to cover rent, salaries and a profit, don’t add 35% to cost. Divide instead:
Price = Cost ÷ (1 − target margin)
Cost 600, target margin 35%: 600 ÷ 0.65 = 923. Check: profit 323 ÷ 923 = 35%. Adding 35% to cost would give 810, a margin of only 26%.
Pricing a small range at one margin
Say you sell three products and want a 30% margin on each. Divide each cost by 0.7:
| Product | Full cost | Price (cost ÷ 0.7) | Profit |
|---|---|---|---|
| Soap gift box | 420 | 600 | 180 |
| Candle set | 850 | 1,214 → round to 1,220 | 370 |
| Hamper | 1,275 | 1,821 → round to 1,850 | 575 |
Round prices up to a sensible figure, never down, or the margin slips below target. Then check what customers will actually pay; a margin target tells you the floor, not the ceiling.
Why the mix-up is expensive
Suppliers and wholesalers often talk in markup (“we add 30%”). Accountants, investors and most business reports talk in margin. If you plan on a 30% margin but actually price at 30% markup, your real margin is 23%. Across a year of sales, that difference can be the whole profit.
Discounts hit margin hard
Say your price gives a 40% margin: cost 600, price 1,000. A 20% sale takes the price to 800. Profit falls from 400 to 200, and the margin to 25%. You’ve halved your profit per item. To earn the same total profit you’d need to sell twice as many. Before running a sale, check the result with a discount calculator and the profit margin calculator.
Use the full cost
Margin is only as good as the cost figure. Include everything you pay per item:
- Purchase price and import duties
- Shipping to you and, if you pay it, to the customer
- Packaging and labels
- Marketplace fees, payment fees and returns
Leave out the fixed costs like rent and salaries; those are what your gross margin has to cover.
And tax?
Work out margins on prices before sales tax, GST or VAT, because the tax isn’t your money. If you quote prices including tax, take the tax out first; a sales tax calculator does it in one step.
Frequently asked questions
What is the difference between margin and markup?
Is a 50% markup the same as a 50% margin?
How do I calculate the selling price from a margin?
How do I convert markup to margin?
Should margin include tax?
Price products for the margin you want
Margin, markup and profit from your cost, or the price for a target margin. Calculated on your device.
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