What is the difference between margin and markup?

The denominator. Margin divides profit by the selling price; markup divides it by cost. A 50% markup is a 33.33% margin, and confusing the two when setting prices is a common and expensive mistake.

How do I price for a target margin?

Divide cost by (1 − margin). For a 40% margin on a cost of 60: 60 ÷ 0.6 = 100. Adding 40% to the cost instead gives 84, which is only a 28.57% margin.

Margin Calculator (Gross Profit Margin)

Gross margin and markup from cost and price.

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Formula

Margin = (price − cost) ÷ price. Markup = (price − cost) ÷ cost

\text{margin} = \frac{\text{price} - \text{cost}}{\text{price}}

Margin is the share of the selling price left after the item's own cost — the part that has to cover overheads and profit. Markup is the same profit measured against cost instead. They describe one sale from two ends, and margin is always the smaller number.

Worked example

An item that costs $60 and sells for $100 leaves $40. That is a 40% margin (40 ÷ 100) but a 66.67% markup (40 ÷ 60) — the same profit, two different percentages.

Where this can give the wrong answer

This is gross margin: it counts only the direct cost of the item. Rent, wages, shipping and card fees come out of it afterwards, so a healthy gross margin can still mean an unprofitable business.
Margin can never reach 100% unless the cost is zero, while markup has no ceiling. Doubling your cost is a 100% markup and a 50% margin.
A price below cost gives a negative margin, shown as a loss per sale.
Use figures that both include or both exclude sales tax. Mixing a tax-inclusive price with a tax-exclusive cost overstates the margin.

FAQ

: The denominator. Margin divides profit by the selling price; markup divides it by cost. A 50% markup is a 33.33% margin, and confusing the two when setting prices is a common and expensive mistake.

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