Markup Calculator

The formulas

Price = Cost x (1 + Markup)

Markup = (Price - Cost) / Cost

Margin = (Price - Cost) / Price

Margin = Markup / (1 + Markup)

The last one is the important one. It lets you convert a markup into a margin without going through the price, and it shows why the two numbers diverge so sharply at high markups.

Worked example

Cost $40, markup 25%:

Price: $40 × 1.25 = $50
Profit: $10
Markup: $10 ÷ $40 = 25%
Margin: $10 ÷ $50 = 20%
After a 10% discount ($45): margin falls to 11.1%

Look at that last line. A 10 percent discount cut the margin almost in half, from 20 percent to 11 percent. This is why discounting is so dangerous on thin-margin products.

Markup to margin conversion table

Markup on cost	Gross margin	Price on a $100 cost
10%	9.1%	$110
20%	16.7%	$120
25%	20.0%	$125
33%	25.0%	$133
50%	33.3%	$150
100%	50.0%	$200
200%	66.7%	$300
400%	80.0%	$500

Note that markup can exceed 100 percent but margin never can. They are not interchangeable, and sales conversations that switch between them without saying which is which are usually hiding something.

Common mistakes

Quoting markup when the buyer hears margin. Always state the basis. "25 percent markup" and "25 percent margin" are prices of $50 and $53.33 on a $40 cost.
Leaving costs out of the cost figure. Shipping, payment fees, platform commission and packaging belong in cost, or the markup is not real.
Applying markup to the selling price. Markup is on cost. Applying it to price turns it into a margin calculation and produces a lower number.
Discounting without recalculating. The discount comes straight out of margin, not out of markup. Recheck the margin before agreeing.
Assuming a high markup means high profit. Volume matters. A 200 percent markup on a product nobody buys earns nothing.

Frequently asked questions

What is the difference between markup and margin?

Markup is profit as a percentage of cost. Margin is profit as a percentage of price. A 50 percent markup is a 33.3 percent margin. They describe the same profit from different bases.

Why does a 100 percent markup give only 50 percent margin?

Because the price doubles, so the profit is half the price. Markup divides profit by cost, margin divides profit by price. As markup grows large, margin approaches but never reaches 100 percent.

Which should I use to set prices?

Set the price so that margin covers your fixed costs and target profit. Margin is the number that connects to your profit and loss statement, so it is the safer basis for pricing decisions.

How do I convert margin back to markup?

Markup = Margin / (1 - Margin). A 40 percent margin equals a 66.7 percent markup on cost.

Can markup be negative?

Yes, if you sell below cost. That produces a negative profit and a negative margin, which is a loss on every unit sold.

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