How the result is calculated
The confusion between margin and markup costs small businesses real money, because the two words describe the same profit from opposite ends. Profit margin answers "what share of the price do I keep?" Markup answers "how much did I add on top of cost?" A target set as one and measured as the other is wrong on every unit sold, and this guide shows by how much.
ProfitPrice − Cost
MarginProfit ÷ Price
MarkupProfit ÷ Cost
- Cost
- what the item costs you to make or buy
- Price
- what you sell it for
Rearranged for pricing, and for translating between the two:
Price from marginCost ÷ (1 − Margin)
Price from markupCost × (1 + Markup)
Cost from marginPrice × (1 − Margin)
MarkupMargin ÷ (1 − Margin)
MarginMarkup ÷ (1 + Markup)
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Cost | $60.00 | Cost |
| Price | $100.00 | Selling price |
| Profit | $40.00 | 100 − 60 |
| Margin | 40% | 40 ÷ 100 |
| Markup | 66.67% | 40 ÷ 60 |
Same sale, same profit, but "66.67% markup" sounds far healthier than "40% margin". That gap is exactly why the two get mixed up.
| Item | Amount | How it is obtained |
|---|---|---|
| Price from margin | $71.43 | 50 ÷ (1 − 0.30) |
| Profit | $21.43 | 71.43 − 50, which is 30% of 71.43 |
| Price from a 30% markup instead | $65.00 | 50 × 1.30 |
| Margin at that markup price | 23.1% | 15 ÷ 65, seven points short of target on every unit |
Reading the result
The headline is the profit per unit, with the margin and the markup beside it and the working under each. Whichever two figures you entered, all four are shown, so you can read the sale either way round. With a positive cost, margin always stays below 100%; a zero-cost sale has a 100% margin and an undefined markup, and the calculator says so rather than showing a number.
The mode selector decides which two figures are inputs. "Cost and price" is for a sale that has already happened. "Cost and margin" and "cost and markup" are for setting a price, and the difference between them is the whole point of the second worked example. "Price and margin" works backwards from a price the market will bear to the most you can afford to pay for the item, which is the question a buyer or a reseller actually faces.
What changes the result
Why a 100% margin is impossible
Margin is capped below 100% because it is measured against the price, and 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 two drift further apart 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.
What is not included
- Overheads. Rent, salaries, marketing and tools are not in the per-unit cost unless you put them there. A 40% gross margin does not mean 40% profit for the business.
- Taxes on the sale. Enter prices and costs on the same basis, both before VAT or sales tax or both after, or the margin will be wrong by the tax rate.
- Discounts and returns. The price is the one you actually receive. A list price that is routinely discounted overstates the margin.
- Volume effects. Unit cost usually falls with volume; the calculator works on one unit at the cost you give it.
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. Use the markup figure when talking to suppliers or applying quick pricing rules, and convert whenever the two meet, so that a target set as one is never measured as the other.