Profit Margin vs Markup: Formulas and Conversion Table
Profit margin vs markup: margin is profit as a share of price, markup is profit as a share of cost. Learn both formulas and convert between them.
By Awais, Founder and editor-in-chiefPublished
Markup is profit as a percentage of cost. Profit margin is profit as a percentage of the selling price. Buy something for $60 and sell it for $100, and your profit is $40: that’s a 66.7% markup but only a 40% margin.
They describe the same sale from different ends, and mixing them up is one of the most common pricing errors in small businesses. If you want a 40% margin and add 40% to cost, you end up with only a 28.6% margin. The profit margin calculator and the markup calculator work in both directions.
The formulas
Markup = profit ÷ cost × 100
Margin = profit ÷ price × 100
And to set a price from a target:
Price from margin = cost ÷ (1 − margin)
Write percentages as decimals in these formulas: 40% is 0.4.
Worked example: same product, two numbers
A shop buys a jacket for $60 and sells it for $100.
- Profit: 100 − 60 = $40
- Markup: 40 ÷ 60 = 66.7%
- Margin: 40 ÷ 100 = 40%
Both are correct. The shop’s supplier talks about markup; the accountant talks about margin.
The mistake: using a margin target as a markup
The owner wants a 40% margin on a new jacket that costs $60, and adds 40% to cost:
- Price: 60 × 1.4 = $84
- Profit: $24
- Margin: 24 ÷ 84 = 28.6%, not 40%
To get a real 40% margin:
- Price: 60 ÷ (1 − 0.4) = $100
- Profit: $40, margin 40 ÷ 100 = 40% ✓
On 1,000 jackets a year, that mix-up costs $16,000 of profit.
Conversion table
Margin = markup ÷ (1 + markup)
| Margin | Equivalent markup | Price for a $100 cost |
|---|---|---|
| 10% | 11.1% | $111.11 |
| 20% | 25% | $125.00 |
| 25% | 33.3% | $133.33 |
| 30% | 42.9% | $142.86 |
| 33.3% | 50% | $150.00 |
| 40% | 66.7% | $166.67 |
| 50% | 100% | $200.00 |
| 60% | 150% | $250.00 |
| 75% | 300% | $400.00 |
Two things to notice:
- Markup is always bigger than margin for the same sale (when there is a profit).
- Margin can never reach 100%, because that would mean the cost was zero. Markup has no upper limit: a 300% markup is a 75% margin.
A “keystone” price, common in retail, means doubling the cost: a 100% markup, or a 50% margin.
Gross, operating and net margin
The margin above is gross margin: price minus the direct cost of the product. Businesses also track:
| Margin | What’s subtracted from revenue | What it tells you |
|---|---|---|
| Gross margin | Cost of goods sold (product, materials, direct labour) | Whether each sale is priced well |
| Operating margin | Cost of goods sold + operating expenses (rent, wages, software, marketing) | Whether the business is profitable from its main activity |
| Net margin | Everything, including interest and tax | What’s left for the owner at the end |
A product with a healthy 50% gross margin can still lose money if rent, ads and wages eat more than that 50%. That’s where the break-even calculator helps: it shows how many units you need to sell to cover your fixed costs.
Don’t forget fees and shipping
For online sellers, “cost” should include everything that scales with each sale:
- product or materials cost,
- packaging and shipping you pay,
- marketplace fees (for example Etsy, eBay or Amazon),
- payment processing fees (PayPal, Stripe),
- advertising cost per sale, if you track it.
Example: a mug costs $6 to make, $4 to ship, and the marketplace and payment fees come to about $2.80 on a $28 sale.
- True cost: 6 + 4 + 2.80 = $12.80
- Profit: 28 − 12.80 = $15.20
- Margin: 15.20 ÷ 28 = 54.3%
If you only counted the $6 production cost, you’d think the margin was 78.6%. The fee calculators for Etsy, PayPal and others show the fee part for your platform.
How discounts hit margin
Discounts come out of your margin, not your price. On the $100 jacket with a $60 cost:
| Discount | Sale price | Profit | Margin |
|---|---|---|---|
| None | $100 | $40 | 40% |
| 10% | $90 | $30 | 33.3% |
| 20% | $80 | $20 | 25% |
| 30% | $70 | $10 | 14.3% |
A 20% discount halves the profit per jacket. You’d need to sell twice as many to make the same money. The discount calculator shows the sale price for any percentage.
Which should you use?
- Use margin to judge profitability and to compare products, months or businesses. It’s what accountants, investors and most financial statements use.
- Use markup for quick pricing from cost, especially when you buy stock at known prices.
- Always say which one you mean. “We make 30% on that” is ambiguous until someone asks “margin or markup?”
FAQ
What is the difference between margin and markup?
Both use the same profit. Margin divides it by the selling price; markup divides it by the cost. A $40 profit on a $60 cost and $100 price is a 40% margin and a 66.7% markup.
How do I convert markup to margin?
Divide the markup by 1 plus the markup. A 50% markup is 0.5 ÷ 1.5 = 33.3% margin.
What is a good profit margin?
It depends on the industry. Grocery and fuel run on thin margins, while software and many services have high ones. Compare yourself with businesses like yours, and look at net margin, not just gross margin.
Can markup be more than 100%?
Yes. Selling something for $40 that costs $10 is a 300% markup (and a 75% margin). Margin, on the other hand, is always below 100%.