Reference chart
Margin vs Markup Chart
By &Pixels, the studio that builds MyCalculator.to. Cost is held at $100 throughout, so the price column reads directly as a multiplier.
The same profit expressed two ways, side by side, because mixing them up is the most expensive arithmetic mistake in retail.
What is the difference between margin and markup?
Margin is profit as a share of the price you charge. Markup is profit as a share of what the item cost you. They describe the same money divided by two different numbers, so they are never equal and the gap widens as both rise.
Buy at $100, sell at $150, and you have made $50. That is a 50 percent markup and a 33.3 percent margin. A seller who wanted a 50 percent margin and applied a 50 percent markup has priced an entire catalogue about a third too low, and usually finds out from a year-end statement rather than from a spreadsheet.
Markup to margin
| Markup | Margin | Cost | Price |
|---|---|---|---|
| 10% | 9.1% | $100 | $110 |
| 15% | 13.0% | $100 | $115 |
| 20% | 16.7% | $100 | $120 |
| 25% | 20.0% | $100 | $125 |
| 30% | 23.1% | $100 | $130 |
| 40% | 28.6% | $100 | $140 |
| 50% | 33.3% | $100 | $150 |
| 60% | 37.5% | $100 | $160 |
| 75% | 42.9% | $100 | $175 |
| 100% | 50.0% | $100 | $200 |
| 150% | 60.0% | $100 | $250 |
| 200% | 66.7% | $100 | $300 |
| 300% | 75.0% | $100 | $400 |
Notice that the two columns only converge at zero and diverge everywhere else. At a 300 percent markup the margin is 75 percent, and no amount of markup ever reaches a 100 percent margin, because you cannot keep more than the whole price.
The calculators behind this
Pricing for a target margin
This is the direction people actually need: you know the margin the business requires, and you need the price. Multiply the cost by the figure in the last column.
| Target margin | Markup needed | Price |
|---|---|---|
| 20% | 25% | 1.25x cost |
| 25% | 33.3% | 1.33x cost |
| 30% | 42.9% | 1.43x cost |
| 35% | 53.8% | 1.54x cost |
| 40% | 66.7% | 1.67x cost |
| 45% | 81.8% | 1.82x cost |
| 50% | 100% | 2.00x cost |
| 60% | 150% | 2.50x cost |
| 70% | 233% | 3.33x cost |
How to price an item
- Decide which number you are quoting. Margin is a share of the price. Markup is a share of the cost. They are never the same figure.
- Work from the margin you need. Margin is what pays the business, so it is the target. Markup is only how you get there.
- Divide rather than multiply. Price equals cost divided by one minus the margin. For a 40 percent margin, divide cost by 0.6.
- Take fees off the cost side first. Payment processing and platform fees are cost. Leaving them out inflates every margin you calculate.
- Sanity-check a discount against margin, not price. A 20 percent discount on a 30 percent margin leaves about 12 percent, not 10.
For one figure rather than the table, the markup and margin calculator converts either way, and the profit margin calculator works from cost, price and fees together, which is the version that matches what actually lands in the account.
Formula & Methodology
Formula
Price = Cost / (1 - Margin)Price = what you charge the customer
Cost = what the item cost you, fees included
Margin = the share of the price you want to keep, as a decimal
Worked Example
A $30 item at a 40 percent target margin
Did you know? No markup can ever produce a 100 percent margin. Margin is a share of the price, so reaching 100 percent would mean the item cost nothing. A 900 percent markup still only gets to 90 percent.
Sources
- Generally accepted accounting terminology for gross margin and cost of goods sold
- U.S. Small Business Administration, pricing guidance for small retailers