What profit margin and markup really mean
Profit margin and markup describe the same profit from two different angles, and mixing them up is one of the most expensive pricing mistakes a business can make. Both start from the same number: profit, the difference between your selling price and your cost. What changes is the base you compare that profit against.
Margin states profit as a percentage of the selling price: out of every dollar you charge, how much do you keep? Markup states the same profit as a percentage of the cost: how much did you add on top of cost to reach the price? Because price is always larger than cost, the markup number is always bigger than the margin number for the same sale. That is exactly why a “50% markup” does not mean you keep 50% of what you charge.
This calculator computes both at once and also runs the calculation in reverse: give it the margin you want and it returns the price to sell at. Everything runs in your browser, with no data sent anywhere.
How to use the calculator
- Pick a mode. Cost and price starts from those two numbers; Cost and target margin returns the price.
- Enter the cost of the product (what you pay).
- Depending on the mode, enter the selling price or the target margin as a percentage.
- Choose the currency so amounts show with the right symbol.
- Read the profit, the margin (on price) and the markup (on cost). You can copy the result.
The formulas
Profit is the foundation of everything:
profit = price − cost
Margin and markup follow from it:
margin % = profit ÷ price × 100
markup % = profit ÷ cost × 100
The reverse mode, setting a price from a target margin, solves for price:
price = cost ÷ (1 − margin ÷ 100)
Worked example
You buy a product for 100 and sell it for 150:
- Profit:
150 − 100 = 50 - Margin:
50 ÷ 150 × 100 = 33.33% - Markup:
50 ÷ 100 × 100 = 50%
Here is the key point: the markup is 50% because you added 50 on top of a cost of 100. But the margin is only 33.33%, because those 50 of profit are measured against the price of 150, not the cost. Same sale, two different percentages. If you assumed a 50% markup left you a 50% margin, you would overstate your profit on every single unit.
Markup → margin conversion table
Because markup is measured on cost and margin on price, there is a fixed conversion between them: margin = markup ÷ (100 + markup) × 100.
| Markup (on cost) | Margin (on price) |
|---|---|
| 10% | 9.09% |
| 25% | 20.00% |
| 50% | 33.33% |
| 100% | 50.00% |
| 200% | 66.67% |
Notice that a 100% markup (doubling the cost) yields a 50% margin, and that no margin can reach 100%: that would mean selling at zero cost.
Frequently asked questions
Why does a 50% markup give a 33.33% margin?
Because each divides the same profit by a different base. With a cost of 100 and a price of 150, profit is 50. Markup divides 50 by the cost (100) and gets 50%. Margin divides 50 by the price (150) and gets 33.33%. Since price is always larger than cost, margin always comes out smaller than markup.
Which one should I use to set prices?
It depends on the conversation. To negotiate with suppliers or decide how much to add on top of cost, markup feels natural. To analyze profitability and compare against your financial statements, use margin, because revenue is reported on price. The rule is never to mix them without converting first.
Can margin ever exceed 100%?
No. Margin is measured against price, and profit can never exceed the full price (that would require a negative cost). Markup, on the other hand, can go well above 100%: it simply means you sell for more than double what you paid.
Does it include sales tax or VAT?
No. The tool works with the cost and price you enter. If you want to account for tax, card fees or shipping, add them to the cost before calculating so the margin reflects what you actually keep.
What if I sell below cost?
The calculator handles it: profit is shown as a loss, and both margin and markup turn negative. That makes it easy to see how much you lose per unit during a clearance sale or an aggressive promotion.