Quick Answer
Margin is profit as a percentage of selling price. Markup is profit as a percentage of cost.
They describe the same profit in dollar terms but produce different percentages. A 50% markup equals a 33.3% margin — not 50%.
Confusing them when setting prices can shrink your actual profit significantly.
The Formulas
Profit = Selling Price − Cost
Margin (%) = (Profit ÷ Selling Price) × 100
Markup (%) = (Profit ÷ Cost) × 100
The only difference is the denominator: selling price for margin, cost for markup.
Worked Example
You buy a product for $60 and sell it for $100.
| Step | Calculation | Result |
|---|---|---|
| Profit | $100 − $60 | $40 |
| Margin | $40 ÷ $100 × 100 | 40% |
| Markup | $40 ÷ $60 × 100 | 66.7% |
Same $40 profit. Two very different percentages.
When to Use Each
Use margin when:
- Reporting profitability to stakeholders
- Comparing business performance across industries
- Reading financial statements (they use margin)
Use markup when:
- Setting prices based on cost
- Talking with suppliers or wholesale buyers
- Calculating how much to add to cost for a retail price
Most pricing conversations in retail and wholesale use markup. Most financial analysis uses margin.
How to Calculate Selling Price from a Target Margin
This is where people get tripped up. If you want a 40% margin, you cannot simply add 40% to your cost. That gives you a 40% markup, not a 40% margin.
The correct formula:
Selling Price = Cost ÷ (1 − Margin ÷ 100)
Example: Cost is $60, target margin is 40%.
Selling Price = $60 ÷ (1 − 0.40) = $60 ÷ 0.60 = $100
Check: ($100 − $60) ÷ $100 = 40% margin. ✓
Margin Calculator
Calculate margin, markup, and the selling price needed for a target margin. Switch between forward and reverse calculations.
Open CalculatorMargin ↔ Markup Conversion Table
| Margin | Markup | Multiplier on Cost |
|---|---|---|
| 10% | 11.1% | × 1.111 |
| 15% | 17.6% | × 1.176 |
| 20% | 25.0% | × 1.250 |
| 25% | 33.3% | × 1.333 |
| 30% | 42.9% | × 1.429 |
| 33.3% | 50.0% | × 1.500 |
| 40% | 66.7% | × 1.667 |
| 50% | 100.0% | × 2.000 |
| 60% | 150.0% | × 2.500 |
Conversion formulas (use decimals):
Markup = Margin ÷ (1 − Margin)
Margin = Markup ÷ (1 + Markup)
Common Mistakes
1. Adding margin percentage directly to cost
If your cost is $60 and you want a 40% margin, adding 40% to cost gives $84. But $84 only yields a 28.6% margin, not 40%. Use the formula above.
2. Treating margin and markup as interchangeable
A supplier quotes 30% markup. Your financial model assumes 30% margin. That gap means your actual margin is only 23.1% — a 7 percentage point shortfall that compounds across every sale.
3. Forgetting that margin has a ceiling
Margin approaches but never reaches 100% (that would mean zero cost). Markup has no upper limit. A 300% markup is a 75% margin.
Gross Margin vs Net Margin
This article — and most margin calculators — covers gross margin: revenue minus direct cost of goods.
Net margin subtracts all expenses (rent, salaries, marketing, taxes) from revenue. It requires a full income statement to calculate and is always lower than gross margin.
When someone says "margin" without qualification, they usually mean gross margin in product pricing and net margin in financial reporting. Always clarify.
Frequently Asked Questions
What is profit margin in simple terms?
Profit margin is the percentage of each dollar of revenue that you keep as profit. If you sell something for $100 and your margin is 30%, you keep $30 and $70 covers your costs.
Is a higher margin always better?
Higher margin per unit is better in isolation, but volume matters. A 5% margin on millions of units (grocery model) can generate more total profit than a 60% margin on a few sales. Margin is one metric, not the whole picture.
What margin do I need to cover overhead?
Gross margin must be high enough to cover all operating expenses (rent, labor, marketing) and still leave net profit. If your monthly overhead is $10,000 and you sell $50,000 in goods, you need at least a 20% gross margin just to break even — before any profit.
How does margin relate to the break-even point?
Break-even revenue = Fixed Costs ÷ Gross Margin (as a decimal). If fixed costs are $10,000/month and your gross margin is 40%, you break even at $10,000 ÷ 0.40 = $25,000 in revenue.
Can I use this calculator for services?
Yes. For services, "cost" is typically your direct labor and material cost per project or hour. The margin calculation works the same way regardless of what you sell.
What does a 100% markup mean?
A 100% markup means you doubled the cost. Cost $50 → Price $100 → Profit $50. The margin in this case is 50%, not 100%.
Related Tools
- Percentage Calculator — calculate any percentage, increase, or decrease
- Discount Calculator — find the final price after a discount
- Markup Calculator — calculate markup from cost and desired profit
- Break-Even Calculator — find your break-even point in units or revenue