How it works
Margin and markup both describe profit as a percentage, but they divide by different numbers. Margin is profit as a share of the selling price; markup is profit as a share of the cost. Mixing them up is one of the most common pricing mistakes.
profit = price − cost · margin = profit ÷ price × 100 · markup = profit ÷ cost × 100 price for a target margin = cost ÷ (1 − margin) · price for a markup = cost × (1 + markup)Worked examples. Cost 60, price 100 → profit 40, margin 40%, markup 66.67%. Want a 25% margin on a cost of 60? Price = 60 ÷ 0.75 = 80. A 25% markup on the same cost gives only 75 — a 20% margin.
Margin vs markup table
| Markup | Margin |
|---|---|
| 25% | 20% |
| 33.3% | 25% |
| 50% | 33.3% |
| 66.7% | 40% |
| 100% | 50% |
Markup is always the bigger number. A margin can never reach 100% (that would mean zero cost), while a markup can be any size.
Which costs to include
For a gross margin, use the direct cost of the product: purchase price, materials, shipping in. For a net margin, the cost must also cover rent, wages, marketing and fees — so set a price whose gross margin is high enough to pay for them. Online marketplaces often take 10–15% in fees; add them to the cost.
VAT and pricing
Calculate margin on prices before VAT; the VAT you collect is not your income. Find the net price first with the VAT calculator. To compare value between pack sizes use the unit price calculator, and for price changes the percentage change calculator.