Profit Margin vs Markup: The Difference, With Examples

Profit margin is profit as a share of the selling price; markup is profit as a share of the cost. If you buy something for 60 and sell it for 100, your profit is 40: that's a 40% margin but a 66.7% markup. The two get confused all the time, and the mistake usually leads to underpricing. The Profit Margin Calculator shows both at once.

What are the formulas?

• Profit = price − cost
• Margin = profit ÷ price × 100
• Markup = profit ÷ cost × 100
• Price for a target margin = cost ÷ (1 − margin)
• Price for a target markup = cost × (1 + markup)
• Maximum cost for a price and margin = price × (1 − margin)

Write margins and markups as decimals in the formulas: 40% = 0.4.

A worked example

You buy a product for 60 and sell it for 100.

• Profit = 100 − 60 = 40
• Margin = 40 ÷ 100 = 40%
• Markup = 40 ÷ 60 = 66.67%

Now the other way round: your cost is 60 and you want a 40% margin. Price = 60 ÷ (1 − 0.4) = 60 ÷ 0.6 = 100.

A common mistake is to add 40% to the cost instead: 60 × 1.4 = 84. That's a 40% markup, but only a 28.6% margin. On 1,000 sales that's 16,000 less profit than you planned.

Margin to markup conversion table

Margin	Markup needed
10%	11.1%
20%	25%
25%	33.3%
30%	42.9%
40%	66.7%
50%	100%
60%	150%
75%	300%

To convert yourself: markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).

How do you use the calculator?

1. Open the Profit Margin Calculator.
2. Under I know, pick one:
   • Cost and price: get the margin, markup and profit per sale.
   • Cost and margin: get the selling price you need.
   • Price and margin: get the most you can pay for the product (maximum cost).
3. Type the numbers. Results update instantly and work in any currency.

Which costs should you include?

Margin is only as good as the cost you enter. For a product, include:

• the purchase or production price,
• shipping to you and packaging,
• payment fees (card or marketplace fees are often 2–15% of the price),
• any per-sale platform commission.

Fixed costs like rent and salaries don't belong in the per-unit cost. Use the Break-Even Calculator to see how many sales you need to cover them; our break-even guide explains how.

Gross margin vs net margin

• Gross margin uses only the direct cost of what you sold. That's what this calculator shows per sale.
• Net margin subtracts everything else too: rent, salaries, marketing, tax. It's lower, and it's the true profitability of the business.

A shop can have a healthy 50% gross margin and still lose money if its fixed costs are too high.

What about tax?

Work out margins on prices without VAT, GST or sales tax. The tax isn't your money; you pass it on to the government. If your shelf price includes 20% VAT, divide by 1.2 first. The VAT & GST Calculator removes it for you.

What is a good profit margin?

It depends on the industry. Supermarkets work on thin margins and make it up on volume; software and services can run much higher margins. Compare with businesses like yours rather than chasing a single "good" number, and check that your margin covers your fixed costs and leaves a profit.

Quick pricing checklist

• Decide the margin you need, then calculate the price with cost ÷ (1 − margin).
• Include every per-sale cost.
• Exclude sales tax from the calculation.
• Check break-even: how many sales cover your fixed costs?
• Round to a sensible price and recheck the margin.

Try your own numbers in the free Profit Margin Calculator, or use the Percentage Calculator for quick percent questions. This guide is general information, not financial advice.