Margin versus markup
Both measure profit, but from different bases. Mixing them up is a common and costly mistake: a 50% markup does not give a 50% margin. A 50% markup on 100 of cost gives a price of 150, so the profit of 50 is only a 33.3% margin.
Use margin when thinking about how much of every sale you keep. Use markup when you build a price up from a cost.
A worked example
You buy an item for 60 and sell it for 100. The profit is 40. The margin is 40 ÷ 100 = 40%, and the markup is 40 ÷ 60 = 66.7%.
To keep a 40% margin, you must divide cost by 0.6 to get the price. Multiplying cost by 1.4 gives only 84, which is a 28.6% margin, so the target would be missed.
What to include in cost
For a true picture, include everything it costs to get the product to the customer, such as materials, shipping and payment fees. Overheads like rent and wages come out of the profit, so the margin you see here is a gross margin unless you include them.
Remember sales tax or VAT is not revenue, so exclude it from both cost and price.
About this tool
The calculator gives a quick estimate for planning. It is not accounting or tax advice.
Questions people ask
How do you calculate profit margin?
Profit margin = (selling price − cost) ÷ selling price × 100. If something costs 60 and sells for 100, the profit is 40 and the margin is 40%.
What is the difference between margin and markup?
Margin is profit as a share of the selling price. Markup is profit as a share of the cost. The same sale has a 40% margin but a 66.7% markup, because 40 is 40% of 100 and 66.7% of 60.
How do I set a price for a target margin?
Divide the cost by 1 minus the margin. For a 40% margin on a cost of 60, the price is 60 ÷ 0.60 = 100. Use the margin option above to do it automatically.
Can margin be 100%?
No. A 100% margin would mean a cost of zero. Markup can be above 100%, for example a 150% markup means selling at 2.5 times cost.
What is a good profit margin?
It depends on the industry, size and business model. Retail margins are often thinner than software or services. Compare with similar businesses and include overheads, not just direct cost.