How this margin calculator works
Every sale has three numbers: what the item cost you, what you sold it for, and the profit in between. Margin and markup are just two ways of expressing that profit as a percentage, and the confusion between them costs small businesses real money. This calculator lets you start from any two figures, cost and price, cost and a target margin, cost and a markup, or price and a target margin, and fills in the rest.
At a glance
- Margin is profit divided by price; markup is profit divided by cost.
- Enter any two of cost, price, margin and markup to get the rest.
- Margin can never reach 100%; markup has no ceiling.
- Price with the margin formula when your plan is stated as a margin.
Profit margin answers "what share of the price do I keep?" Markup answers "how much did I add on top of cost?" They describe the same dollars from opposite ends, so they are never equal for the same sale (except at zero profit).
The formulas
Profit = Price − Cost
Margin = Profit ÷ Price
Markup = Profit ÷ Cost
Rearranged for pricing:
Price from margin = Cost ÷ (1 − Margin)
Price from markup = Cost × (1 + Markup)
Cost from margin = Price × (1 − Margin)
And to translate between the two:
Markup = Margin ÷ (1 − Margin)
Margin = Markup ÷ (1 + Markup)
Worked example: cost and price
An item costs $60 and sells for $100.
Profit: 100 − 60 = $40. Margin: 40 ÷ 100 = 40%. Markup: 40 ÷ 60 = 66.67%.
Same sale, same profit, but "66.67% markup" sounds far healthier than "40% margin". That gap is exactly why the two get mixed up.
Worked example: pricing to a target margin
A product costs $50 and the business needs a 30% margin.
Price = 50 ÷ (1 − 0.30) = 50 ÷ 0.70 = $71.43. Profit is $21.43, which is indeed 30% of $71.43.
Had you applied a 30% markup instead, the price would be 50 × 1.30 = $65.00 and the margin only 23.1%, seven points short of target on every unit.
Why a 100% margin is impossible
Margin is capped below 100% because it is measured against the price. A 100% margin would mean the entire price is profit and the item cost nothing; anything higher would need a negative cost. Markup has no such ceiling, a 100% markup simply means selling for double what you paid, which is a 50% margin. If a target sounds like "double my money", it is a markup figure.
Margin or markup: which to use
- Markup is the natural tool when you start from cost and apply a rule of thumb ("cost plus 40%"). It is simple, but it hides how much of your revenue is actually profit.
- Margin is how accounts, investors and most retail targets are expressed. Gross margin on a profit-and-loss statement is total gross profit divided by total revenue, the same calculation, summed over every sale.
If your business plan states a required margin, price with the margin formula. If a supplier or industry quotes a markup, convert it to margin before comparing with your plan. The table below shows how far apart the two drift as the numbers rise.
| Margin | Equivalent markup |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 75% | 300% |
What to include in cost
The margin you actually earn depends on using a complete cost. For a physical product that means materials, direct labour, packaging, inbound shipping and any per-unit platform or payment fees. For a service it means the time at your loaded hourly rate plus direct expenses. Leave these out and the calculator will show a margin you never see in your bank account. For marketplace sellers, the Etsy and Amazon fee calculators work out the per-sale deductions to feed in here.
Using the result
Use the margin figure to check every product against the level your business needs to cover overheads and make a profit overall, a 40% gross margin does not mean 40% profit once rent, salaries and marketing are paid. Use the markup figure when talking to suppliers or applying quick pricing rules, and convert whenever the two meet.