Margin vs. Markup: Formulas and Selling Price Examples

 

Margin and markup both describe profit relative to another amount, but they are not interchangeable. Margin divides profit by selling price. Markup divides profit by cost.

Use the Profit Margin & Markup Calculator to compare both percentages or calculate a price from a chosen target.

Start with cost, price, and profit

Profit on entered cost = selling price - cost. At $80 cost and a $100 selling price, profit is $20. This is not automatically net business profit: the cost input may omit overhead, taxes, fees, or other expenses.

How to calculate margin

Margin = profit / selling price x 100. In the example, $20 / $100 x 100 = 20%.

How to calculate markup

Markup = profit / cost x 100. With the same amounts, $20 / $80 x 100 = 25%. The profit is unchanged; the denominator is different.

Why a 20% markup is not a 20% margin

Adding a 20% markup to $80 cost gives $96. Profit is $16. Margin is $16 / $96 x 100, or approximately 16.67%. To obtain a 20% margin on that cost, the selling price must instead be $100.

Find selling price from a target margin

Price = cost / (1 - target margin / 100). For $80 cost and 20% margin: $80 / 0.80 = $100. With positive cost, a margin of 100% is not a finite-price target.

Find selling price from a target markup

Price = cost x (1 + target markup / 100). For $80 cost and 25% markup: $80 x 1.25 = $100.

How cent rounding affects a target

At $10 cost and 30% target margin, the unrounded price is $14.285714... . The calculator rounds up to $14.29 so the selected target is met under the cost model. It then recalculates the actual margin and markup from $14.29. Displayed percentages are rounded to two decimal places.

Choose consistent costs and prices

Use one unit's cost and one unit's price, or matching totals. Do not compare total inventory cost with a single item's price. Keep tax treatment consistent, and identify expenses omitted from the cost input.

The tool does not automatically calculate marketplace fees, discounts, shipping, overhead, or taxes. A price that meets a product-level margin does not necessarily produce the same net business margin.

Frequently asked questions

Can margin or markup be negative?

Yes. When selling price is below cost, profit is negative. Percentages with nonzero denominators are negative as well.

What happens at zero cost?

Markup is undefined because it divides by cost. With a positive selling price and zero cost, margin is 100% under this simple model. Target-price modes require positive cost.

What happens at zero selling price?

Margin is undefined. With a positive cost, markup is -100%, since the entire entered cost is lost in the comparison.

Does the calculator recommend a target?

No. It computes the percentages and prices you choose. Demand, competitive pricing, costs, and business goals need separate assessment.

Try the Profit Margin & Markup Calculator to compare the two percentages. For subsequent price reductions, use the Discount Calculator.