How margin and markup are worked out
Both use the same profit, but margin divides by the selling price and markup divides by the cost.
Margin = (price − cost) ÷ price × 100 · Markup = (price − cost) ÷ cost × 100
- Gross profit is the selling price minus the cost.
- Margin divides the profit by the selling price. Markup divides it by the cost.
- To price for a target margin: price = cost ÷ (1 − margin ÷ 100).
- To price for a markup: price = cost × (1 + markup ÷ 100).
- With tax included, the price is divided by (1 + tax rate ÷ 100) first, so the margin is worked on the ex-tax amount.
Worked example — Cost $100, selling price $150. Profit is $50. Margin = 50 ÷ 150 = 33.33%. Markup = 50 ÷ 100 = 50%.
Markup and margin equivalents
| Markup | Margin |
|---|---|
| 10% | 9.09% |
| 20% | 16.67% |
| 25% | 20% |
| 33.33% | 25% |
| 50% | 33.33% |
| 100% | 50% |
| 200% | 66.67% |
Swipe the table sideways to see the rest.
Margin = markup ÷ (100 + markup) × 100.
Common margin examples
| Cost | Selling price | Gross margin | Markup | Gross profit |
|---|---|---|---|---|
| $100 | $150 | 33.33% | 50% | $50.00 |
| $40 | $100 | 60% | 150% | $60.00 |
| $7.5 | $12 | 37.5% | 60% | $4.50 |
| $250 | $400 | 37.5% | 60% | $150.00 |
| $1,200 | $1,800 | 33.33% | 50% | $600.00 |
Swipe the table sideways to see the rest.
Cost and selling price, without tax. Each row is worked out by this calculator.
Things to consider
- Margin can never reach 100% unless the cost is zero. Markup has no upper limit.
- Quote margin when talking about profitability, and markup when setting prices from cost.
- Include freight, packaging and payment fees in the cost for a true margin.
- Discounts hit margin hard: 10% off a 30% margin item removes a third of the profit.
Frequently asked questions
What is the difference between margin and markup?
Both use the same profit. Margin is profit ÷ selling price, and markup is profit ÷ cost. A $100 item sold for $150 has a 33.33% margin and a 50% markup.
How do I calculate profit margin?
Subtract the cost from the selling price, divide by the selling price and multiply by 100. ($150 − $100) ÷ $150 × 100 = 33.33%.
How do I price for a target margin?
Divide the cost by (1 − margin). For a 25% margin on a $100 cost, the price is $100 ÷ 0.75 = $133.33.
Why isn't a 50% markup a 50% margin?
Markup measures against the cost and margin against the price. A 50% markup on $100 gives $150, and $50 is only 33.33% of $150.
Should margin be worked out with or without tax?
For a business registered for a tax such as GST or VAT, use ex-tax amounts, because the tax is passed on to the government. Choose Prices include tax and enter your rate to strip it out.
What is a good profit margin?
It varies widely by industry, product and business model. Compare against your own costs and similar businesses rather than a single figure.
Results are estimates for general information only, not financial, medical or professional advice.