Markup vs. Margin Calculator
Markup and margin both describe the same dollar of profit, measured against different things. Markup divides it by your cost. Margin divides it by your price. Mixing them up is one of the most common pricing mistakes in a small business, and it always costs money in the same direction.
Gross margin and markup here use the cost you enter per unit. They do not include overhead such as rent, payroll for staff who are not making the product, card fees or marketing. Estimates only. This calculator is for educational purposes and is not financial, tax or legal advice.
The difference in one example
Say a product costs you $60 and you sell it for $90. You make $30 of gross profit on each sale.
- Markup compares the $30 to the $60 cost: $30 ÷ $60 = 50%.
- Margin compares the $30 to the $90 price: $30 ÷ $90 = 33.3%.
Same sale, same $30. Markup is always the bigger number, because cost is always smaller than price when you make a profit.
The "50% markup is 50% margin" mistake
Here is how it usually goes. An owner wants a 50% margin, so they add 50% to the cost. On a $60 item that gives a $90 price, which is a 33.3% margin, not 50%. To actually earn a 50% margin, the price has to be $120, a 100% markup.
| Markup on cost | Gross margin |
|---|---|
| 25% | 20.0% |
| 50% | 33.3% |
| 100% | 50.0% |
| 200% | 66.7% |
The conversion: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).
Which one to use
Use margin when you look at your income statement, compare yourself with other businesses or decide how much you can discount, because margin is what lands in your gross profit line as a share of sales. Use markup if it is easier to price from cost on the shop floor. Just do the conversion once, and write down the markup that hits the margin you actually need.
Sources: standard definitions of gross margin (gross profit ÷ sales) and markup (gross profit ÷ cost). Examples on this page are calculated by Simple Money Advice; no outside statistics are used.
Frequently Asked Questions
Is a 50% markup the same as a 50% margin?
No. A 50% markup is a 33.3% margin. On a $60 cost, a 50% markup gives a $90 price and $30 of profit, which is 33.3% of the price. A 50% margin needs a $120 price, which is a 100% markup.
How do I convert markup to margin?
Divide the markup by one plus the markup. A 50% markup is 0.5 divided by 1.5, or 33.3%. To go the other way, divide the margin by one minus the margin: a 40% margin is 0.4 divided by 0.6, a 66.7% markup.
What price do I need for a 40% gross margin?
Divide your cost by one minus the margin. For a $60 cost, $60 divided by 0.6 is a $100 price, which leaves $40 of gross profit, 40% of the price.
Does gross margin include rent and payroll?
No. Gross margin only subtracts the cost of the product itself. Rent, most payroll, marketing and card fees come out of gross profit afterward, which is why a healthy gross margin can still leave a thin net profit.