Margin vs Markup: How the Two Percentages Really Work

Margin and markup describe the same profit from two angles. Margin divides the profit by the selling price; markup divides it by the cost. Buy something for 60 and sell it for 100 and the profit is 40, which is a 40% margin but a 66.67% markup. Because the two numbers are never equal (except when profit is zero), mixing them up quietly breaks price lists, commission plans and supplier negotiations.

This guide explains the arithmetic behind each figure, how to convert one into the other, and what happens to margin when prices change. The examples are calculations to help you understand pricing, not financial or business advice.

Same profit, two denominators

Start with three numbers: cost, selling price and profit (price minus cost).

• Margin = profit ÷ selling price
• Markup = profit ÷ cost

Since the selling price is normally larger than the cost, the margin is normally the smaller percentage. With a cost of 60 and a price of 100:

• Margin: 40 ÷ 100 = 40%
• Markup: 40 ÷ 60 = 66.6667%

Margin answers "what share of each sale do I keep?" Markup answers "how much did I add on top of what I paid?" Retailers often set prices with markup and report results with margin, so both show up in the same business.

How do you convert markup to margin and back?

Two formulas cover it:

• Margin = markup ÷ (1 + markup)
• Markup = margin ÷ (1 − margin)

Here are a few pairs from the calculator, all on a cost of 60 unless noted:

You set	Selling price	Profit	Margin	Markup
40% markup	84.00	24.00	28.5714%	40%
50% markup	90.00	30.00	33.3333%	50%
40% margin	100.00	40.00	40%	66.6667%
30% margin on a 25 price	25.00	7.50	30%	42.8571%

The gap widens as the percentages grow. A 40% markup is under 29% margin, while a 40% margin needs a markup of two-thirds. If a supplier says "we work on 40%," it is worth asking which of the two they mean.

Why can't margin reach 100%?

Margin is a slice of the selling price, so profit can never exceed the whole price. Even if an item cost you nothing, the margin would be exactly 100%. Enter a cost of 0 and a price of 50 and the calculator shows a 100% margin while the markup reads "— (cost is 0)," because dividing by a zero cost has no meaningful answer.

Markup has no ceiling. Selling at three times cost is a 200% markup but only a 66.67% margin. When you ask the calculator for a margin of 100% or more, it stops with the message "A margin must be below 100 %."

Working backwards to a price or a cost

The most practical use is solving for the number you don't have yet. The I know menu offers four starting points:

1. Cost and selling price gives the profit margin as the main result.
2. Cost and desired margin gives the selling price: price = cost ÷ (1 − margin).
3. Cost and markup gives the selling price: price = cost × (1 + markup).
4. Selling price and margin gives the highest cost you can pay: cost = price × (1 − margin).

The fourth mode is handy when the market sets the price. If a product must sell for 25 and you need a 30% margin, the most you can pay for it is 17.50.

Whichever mode you pick, the results list Profit, Profit margin, Markup, Cost and Selling price together, so you never have to convert by hand. Your costs and prices stay in your browser; nothing is uploaded. If you mostly price from cost, the Markup Calculator opens the same tool already set to cost and markup.

What does a discount do to your margin?

More than the headline percentage suggests. Take the item that costs 60 and normally sells for 100. Mark it down 20% to 80 and run it through the Profit Margin Calculator:

• Profit falls from 40.00 to 20.00, so it halves.
• Margin falls from 40% to 25%.
• Markup falls from 66.6667% to 33.3333%.

Cut the price to 50 and the profit turns negative: a margin of −20% and a markup of −16.6667%. The calculator shows these losses as negative percentages rather than refusing them, which makes it useful for checking whether a promotion still covers cost. The Discount Calculator helps you find the sale price first.

Keep tax out of the comparison

Work out margin on prices excluding VAT or sales tax. The tax is collected for the government and is not profit, so including it inflates both percentages. Price net, check the margin, then add tax with the VAT Calculator.

FAQ

Is this the same as gross margin?

It is, if the cost you enter is the direct cost of the product, such as the purchase price or materials. Gross margin ignores overheads like rent and wages; to see net margin you would need to include those costs per unit.

Which figure should I put in a price list or contract?

Either works, as long as the document names it. Writing "markup on cost" or "margin on selling price" removes the ambiguity that causes most disputes.

Can I enter a negative margin?

Yes. The margin field accepts values below zero, which answers questions like "what price would lose 10% on this sale?" With a cost of 60, a −10% margin gives a price of 54.55.

Work out margin, markup and price in one step with the Profit Margin Calculator.