ReckonBoxMargin and markup, side by side
Profit margin is profit as a percentage of the selling price, and markup is profit as a percentage of the cost, so the same sale is two different percentages. People swap the words constantly, and the gap between them decides whether a price actually earns what you meant it to.
On a $70 item sold for $100, the $30 of profit is a 30% margin but a 42.9% markup. Both describe the same $30. Markup is the bigger number every time, because it divides by the cost, the smaller figure, not the price.
The price for a target margin
To hit a target margin, you divide the cost by one minus the margin, and that is the calculation the field skips. calculatorsoup computes margin and markup from any two values but, by its own note, will not solve the selling price from a margin you want.
Say you want a 40% margin on a $70 cost. The price is $70 divided by 0.60, which is $116.67. The trap is to add 40% to the cost instead, landing on $98, which is a 40% markup and only a 28.6% margin. That mistake quietly hands back a third of the profit you thought you priced in.
Why markup always beats margin
Markup and margin describe one profit from two bases, so markup is always the larger percentage. The denominator is the whole story: markup divides by cost, margin by the bigger selling price.
That is why a supplier quoting a 50% markup and a retailer wanting a 50% margin are not talking about the same thing at all. A 50% markup is a 33.3% margin; a 50% margin is a 100% markup. Converting between them takes one step, and it is the fastest way to catch a quote that sounds fair but is not.
| Cost $70, price $100 | Value |
|---|---|
| Profit | $30 |
| Margin (profit over price) | 30% |
| Markup (profit over cost) | 42.9% |
| Price for a 40% margin | $116.67 |
Where the numbers come from
Margin is the selling price minus the cost, divided by the selling price. Markup is the same profit divided by the cost. The conversion runs both ways: margin equals markup divided by one plus the markup, and markup equals margin divided by one minus the margin. The price for a target margin is the cost divided by one minus that margin, which guarantees the profit lands on the share of the price you asked for.
All of it is arithmetic on the same three numbers, cost, price, and profit, so entering any two fixes the rest.
What this does not cover
This works on a single item's cost and price, not your whole business. It does not model overhead, shipping, payment-processing fees, or returns, each of which eats into the gross margin shown here before anything reaches the bottom line. A healthy gross margin on a product can still lose money once the costs of running the shop are counted.
None of this is advice on how to price your goods. It shows the margin and markup math so you can set a price against your own costs and goals. For pricing tied to your full cost structure, an accountant is the right call.
Frequently asked questions
What is the difference between margin and markup? Margin is profit as a percentage of the selling price, while markup is profit as a percentage of the cost. On a $70 item sold for $100, the $30 profit is a 30% margin but a 42.9% markup. Markup is always the larger number for the same product, because it divides the profit by the smaller figure, the cost.
How do I calculate profit margin? Profit margin is the selling price minus the cost, divided by the selling price. A $70 cost and a $100 price is ($100 minus $70) divided by $100, which is 30%. That tells you what share of each sale is profit, which is why margin is the figure used to judge overall profitability rather than to set a price.
How do I calculate markup? Markup is the selling price minus the cost, divided by the cost. On a $70 cost sold for $100, that is $30 divided by $70, or 42.9%. Markup is the figure you apply to a cost to set a price, which is why a store working on a 42.9% markup and a 30% margin is describing the same $30 of profit two ways.
What price do I need for a 40% margin? To hit a target margin, divide the cost by one minus the margin. For a 40% margin on a $70 cost, that is $70 divided by 0.60, which is $116.67. Setting a price by adding 40% to the cost instead would only be a 40% markup, a $98 price and a 28.6% margin, which is the mistake this calculator is built to catch.
How do I convert markup to margin? Margin equals markup divided by one plus the markup, and markup equals margin divided by one minus the margin. A 42.9% markup is 0.429 divided by 1.429, which is 30% margin. Because the two always describe the same profit from different bases, converting between them is the quickest way to check a supplier quote against your own pricing.