Margin calculator
Margin and markup are different numbers from the same two inputs, and confusing them is the most common pricing mistake. Margin is measured against the price; markup against the cost.
Result
- Gross margin
- 40.00%
- Markup
- 66.67%
- Profit per unit
- $40.00
Worked examples
Margin and markup on the same sale
Cost $60, sold for $100.
- profit = 100 − 60 = 40
- margin = 40 ÷ 100 = 40%
- markup = 40 ÷ 60 = 66.7%
40% margin, 66.7% markup.
Margin and markup are not the same number
Both describe the same profit, but measured against different bases. Margin divides profit by the selling price; markup divides it by the cost. Because the selling price is the larger of the two, margin is always the smaller percentage.
Confusing them is expensive. A business aiming for a 40% margin that applies a 40% markup instead ends up at a 28.6% margin, and the shortfall compounds across every unit sold.
Converting between them
To turn markup into margin: margin = markup ÷ (1 + markup). A 50% markup is a 33.3% margin. To go the other way: markup = margin ÷ (1 − margin). A 50% margin needs a 100% markup — doubling the cost.
Useful reference points: 20% margin is a 25% markup, 33.3% margin is a 50% markup, 50% margin is a 100% markup.
Gross margin is not the whole picture
This calculation uses direct cost only, so it produces gross margin. Rent, salaries, marketing and everything else still have to come out of it before there is any profit.
A healthy gross margin with thin net profit usually points to an overhead problem rather than a pricing one.
Formula
margin % = (price − cost) ÷ price × 100 • markup % = (price − cost) ÷ cost × 100
Worth knowing
- A 40% margin is a 66.7% markup. They are never the same number unless both are zero.
Frequently asked questions
What is the difference between margin and markup?
Margin is profit as a percentage of the selling price; markup is profit as a percentage of the cost. Cost $60 sold at $100 is a 40% margin but a 66.7% markup.
How do I convert markup to margin?
Divide the markup by one plus the markup. A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
What markup gives a 50% margin?
100%. You have to double the cost, because at a 50% margin the profit equals the cost.
Is a higher margin always better?
Not necessarily. A lower margin at much higher volume can produce more total profit, and pricing for maximum margin often means selling less.