- Margin = profit ÷ selling price. Markup = profit ÷ cost.
- A 50% markup equals a 33.3% margin. A 100% markup equals a 50% margin.
- To hit a target margin, divide cost by (1 - margin). Do not add the margin to cost.
- Margin can never reach 100% on a product with a cost, but markup has no upper limit.
The two definitions
Start with three numbers: the cost of an item, its selling price, and the profit, which is price minus cost. In this guide, profit means gross profit, the amount left after the direct cost of the item and before overhead such as rent and wages.
Margin, also called gross margin, asks: what share of the selling price is profit? It looks at the sale from the customer's side of the price tag.
Markup asks: how much was added on top of cost? It looks at the sale from the seller's side, starting from what the item cost.
The profit in dollars is identical in both cases. Only the base of the percentage changes. Because cost is smaller than price, dividing the same profit by cost gives a bigger number.
The formulas
- Margin = (price - cost) ÷ price × 100
- Markup = (price - cost) ÷ cost × 100
You can also work forward from cost to a price:
- Price from markup = cost × (1 + markup)
- Price from margin = cost ÷ (1 - margin)
In these two formulas, write the percentage as a decimal. A 40% margin is 0.40. The markup calculator and the profit margin calculator handle each direction.
One sale, shown both ways
A shop buys a jacket for $60 and sells it for $100.
- Profit = $100 - $60 = $40
- Margin = $40 ÷ $100 = 40%
- Markup = $40 ÷ $60 = 66.7%
Both statements are true at once. The shop keeps 40% of the selling price as gross profit, and it priced the jacket 66.7% above cost. Neither figure is wrong. They answer different questions.
Use margin when you look at overall profitability, because expenses such as rent and wages are usually compared with sales. Use markup when you set prices from a cost list, because it tells you exactly what to multiply by.
Conversion table
You can convert one to the other without knowing the cost or price:
- Margin = markup ÷ (1 + markup)
- Markup = margin ÷ (1 - margin)
For a 50% markup: 0.50 ÷ 1.50 = 0.333, a 33.3% margin. For a 20% margin: 0.20 ÷ 0.80 = 0.25, a 25% markup.
| Markup | Margin | Price of a $100 cost item |
|---|---|---|
| 25% | 20% | $125 |
| 50% | 33.3% | $150 |
| 100% | 50% | $200 |
| 200% | 66.7% | $300 |
| 300% | 75% | $400 |
The gap widens as the numbers grow. Markup can go far above 100%. Margin gets closer to 100% but never reaches it, because some of the price always goes to cost.
Working backward from a price
Sometimes the market sets the price and you need to know the most you can pay for the item. Rearranging the margin formula gives the answer.
Maximum cost = price × (1 - margin)
A retailer plans to sell a lamp at $50 to match nearby shops and needs a 30% margin:
- Maximum cost = $50 × (1 - 0.30) = $50 × 0.70 = $35
- Profit per lamp = $50 - $35 = $15
- Markup at that cost = $15 ÷ $35 = 42.9%
If a supplier quotes $38, the profit drops to $12 and the margin to $12 ÷ $50 = 24%. The retailer can then decide whether to negotiate, raise the price or accept the thinner margin. Knowing the maximum cost before talking to suppliers makes that choice much clearer.
Common pricing mistakes
- Using a markup when you meant a margin. A seller wants a 40% margin and adds 40% to a $60 cost. The price is $84 and the profit is $24. The real margin is $24 ÷ $84 = 28.6%, far below the target. The correct price is $60 ÷ (1 - 0.40) = $100.
- Underestimating discounts. A 20% discount on that $100 jacket drops the price to $80. Cost is still $60, so profit falls from $40 to $20. A 20% price cut removed half the profit, and margin fell from 40% to 25%.
- Leaving costs out. Cost should include everything needed to get the item ready to sell: freight, packaging, duties and payment fees. A margin built on an incomplete cost is overstated.
- Mixing the terms in conversation. If a supplier quotes "30%" and a buyer hears the other measure, the two sides are discussing different prices. Always say which one you mean.
- Using one markup for everything. Slow-selling or bulky items often need a higher markup than fast sellers to earn their shelf space.
Which one should you use?
Most businesses use both, each for a different job.
- Setting prices: markup is the quick tool. Multiply cost by one plus the markup.
- Judging profitability: margin is the standard. It ties directly to revenue, so it shows how much of each sales dollar is left for overhead and profit.
- Planning: margin connects to other measures. The contribution margin drives the break-even point, which you can test with the break-even calculator.
A practical routine is to decide the margin the business needs, convert it to a markup once, and then apply that markup to costs day to day. For a 40% margin, the matching markup is 0.40 ÷ 0.60 = 66.7%.
These figures describe gross profit only. Net profit margin, which also subtracts overhead, interest and taxes, will be lower. Definitions of related terms are in the glossary.
Try it with your own numbers
- Markup CalculatorSelling price and margin from cost and markup.
- Profit Margin CalculatorGross and net margin from revenue and costs.
- Break-Even CalculatorUnits and revenue needed to cover costs.
Frequently asked questions
Is margin or markup higher?
Markup is always the higher percentage on a profitable sale. Both use the same dollar profit, but markup divides it by cost and margin divides it by the selling price. Since cost is the smaller number, the markup percentage comes out larger. The two are equal only when profit is zero.
What markup gives a 50% margin?
A 100% markup gives a 50% margin. Doubling the cost means half of the selling price is cost and half is profit. For example, an item that costs $40 and sells for $80 has a $40 profit. That is 100% of cost and 50% of the price.
How do I convert margin to markup?
Divide the margin by one minus the margin, using decimals. For a 30% margin, the calculation is 0.30 ÷ 0.70 = 0.4286, or a 42.9% markup. To go the other way, divide the markup by one plus the markup. A 42.9% markup returns a margin of about 30%.
Can margin be more than 100%?
No, not when the item has a cost. Margin is profit divided by price, and profit is always smaller than price if cost is above zero. Markup has no such limit. An item that costs $10 and sells for $50 has a 400% markup but an 80% margin.
Sources and further reading
This guide is general education, not financial advice. Rules of thumb vary by lender, industry and country.