Pricing
Margin and markup use different denominators
Margin and markup start from the same profit and then divide by different numbers. Margin divides profit by the selling price. Markup divides profit by the cost.
Take a $40 cost and a $100 selling price. Profit is $60. The margin is 60% because $60 is 60% of the $100 price. The markup is 150% because $60 is 150% of the $40 cost.
| Input | Amount |
|---|---|
| Cost | $40.00 |
| Selling price | $100.00 |
| Profit | $60.00 |
| Margin (profit ÷ price) | 60% |
| Markup (profit ÷ cost) | 150% |
A 50% markup is not a 50% margin
Add a 50% markup to a $100 cost and the price becomes $150. Profit is $50. That $50 is one third of the $150 price, so the margin is 33.33%.
The other direction uses a different formula. A target margin solves price = cost ÷ (1 − margin). A target markup solves price = cost × (1 + markup). A margin target of 100% or more has no finite price, because the formula would divide by zero or by a negative number.
Which percentage belongs on the price tag
Use margin when you want profit as a share of the money the sale brings in. Use markup when you are used to adding a percentage on top of cost. Write down whether the cost is product cost only or whether it already includes packaging, labor, and postage. The margin calculator labels the first result gross profit and the second contribution profit. Neither one is business net profit while overhead and tax are still left out.
Sources and tools
Related guides
Common questions
Does 50% markup mean 50% margin?
No. Cost $100 plus 50% markup gives a $150 price and a 33.33% margin.
Why is margin undefined at a zero price?
Margin divides by revenue. A zero selling price has no margin percentage. Profit can still be calculated.