Quick answer: margin is profit as a share of the selling price; markup is profit as a share of the cost. Buy at 60, sell at 100: profit 40, margin 40 ÷ 100 = 40%, markup 40 ÷ 60 = 66.7%. To hit a target margin, divide the cost by (1 − margin): a 25% margin on a 60 cost needs a price of 80.
Margin and markup are not the same number
Mixing them up is one of the most expensive pricing mistakes in small business. If you want a 40% margin and add 40% to cost, you get 60 × 1.40 = 84 – a margin of only 28.6%.
| Markup on cost | Gross margin |
|---|---|
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
| 150% | 60% |
Margin can never reach 100% (that would need a cost of zero); markup has no upper limit.
The formulas
- Profit = price − cost
- Gross margin = profit ÷ price × 100
- Markup = profit ÷ cost × 100
- Price for a target margin = cost ÷ (1 − margin)
- Price for a target markup = cost × (1 + markup)
What to count as cost
For gross margin, use the direct cost of the product: purchase price or materials, packaging, inbound shipping and payment or marketplace fees per unit. Rent, salaries and advertising come out later in net margin. A healthy gross margin depends on the trade – grocery retail often runs at 20–30%, clothing at 50–60%, software above 80%.
Adding tax to the selling price? The sales tax / VAT calculator does it in either direction. When the product is ready for the shelf, the Barcode Generator makes the EAN or UPC barcode for its label.
How to calculate profit margin
- Choose what you know. Cost and price, cost and target margin, or cost and markup.
- Enter the cost per unit. Include everything it takes to get one unit ready to sell.
- Enter price, margin or markup. The other values are worked out instantly.
- Compare margin and markup. Both are shown side by side so nobody on your team confuses them.
Don’t forget tax
Work out margins on prices without VAT or sales tax – that money belongs to the government, not to you. Use the sales tax calculator to strip tax out of a shelf price first.
Worked example: pricing for a marketplace
A product costs 60. The marketplace keeps 10% of the selling price, and you want a 30% margin after that fee.
- Out of every 100 of price, 10 goes to the marketplace and 30 should be your profit, leaving 60% for the cost.
- Price = cost ÷ (1 − 0.30 − 0.10) = 60 ÷ 0.60 = 100.
- Check: fee 10, cost 60, profit 30 – a 30% margin. ✓
Percentage-based fees (payment processing, marketplace commission) must be subtracted from the price, not added to the cost, which is why they appear in the divisor.
Common pricing mistakes
- Using markup when the target was margin – a 30% markup is only a 23% margin.
- Leaving out shipping, packaging and returns from cost.
- Pricing on margin without checking what customers will pay.
Frequently asked questions
What is a good profit margin?
It depends on the industry. Supermarkets work on thin gross margins around 20–30%, many retailers on 40–60%, software and services higher. Compare with businesses like yours.
How do I calculate margin from cost and price?
Subtract cost from price, divide by price and multiply by 100. Cost 60, price 100: 40 ÷ 100 = 40%.
How do I convert markup to margin?
Margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
How do I set a price for a 30% margin?
Divide the cost by 0.70. A cost of 70 needs a price of 100.
Is gross margin the same as net margin?
No. Gross margin only subtracts the direct cost of goods. Net margin also subtracts overheads, salaries, interest and taxes.
Should I include VAT in the price?
No. Use prices before VAT or sales tax so the margin reflects money your business keeps.
What is the formula for selling price from margin?
Price = cost ÷ (1 − margin). For a 40% margin on a cost of 60: 60 ÷ 0.6 = 100.
Can margin be negative?
Yes, when the price is below the cost. The calculator shows the loss per unit.